Senate
8 October 1924

9th Parliament · 2nd Session



The Deputy President (Senator Newland) took the chair at 3 p.m., and read prayers.

page 5231

QUESTION

FEDERAL CAPITAL

Commission - Building Leases

Senator GRANT:
NEW SOUTH WALES · ALP

– Have the Government yet appointed the chairman and assistant commissioners of the Federal Capital Commission ?

Senator PEARCE:
Minister of Home and Territories · WESTERN AUSTRALIA · NAT

– The commissioners have not yet been appointed.

Senator GRANT:
NEW SOUTH WALES · ALP

– I should like to know why there has been bo much delay in making available lithographs and other detailed information in connexion with the projected sale Of building leasesat Canberra on the 12th December next?

Senator PEARCE:

– The lithographs are now being printed, and as I have previously stated, they will be available at least eight weeks before the sale.

page 5232

QUESTION

COMMONWEALTH BANK

Boardof Directors.

Senator FINDLEY:
VICTORIA

– If it be true that two of the gentlemen appointed as directors of the Commonwealth Bankhave been out of Australia for a considerable time, I should like to know whether they were communicated with before being appointed?

Senator PEARCE:
NAT

– I believe that two of the gentlemen who have been chosen as directors of the Commonwealth Bank were outside Australia and were communicated with. It is anticipated that they will return to Australia very shortly.

page 5232

QUESTION

ALICE SPRINGS RAILWAY

Senator O’LOGHLIN:
SOUTH AUSTRALIA

– Can the Leader of the Government in the Senate give further particulars in regard to the communication which he told the Senate on Friday had been sent to the Premier of South Australia concerning the construction of a railway from Oodnadatta to Alice Springs, and can he say whether it is the intention of the Government to bring in a bill this session to give effect to the proposal?

Senator PEARCE:
NAT

– As I intimated on Friday, a definite proposal has been submitted to the Government of South Australia,butas far as I am aware no reply has yet been received. I also intimated that on receipt of a reply from the State Government, the Prime Minister would make a further statement upon the matter.

page 5232

QUESTION

BRICKLAYERS

Senator McDOUGALL:
NEW SOUTH WALES

-Has the Minister representing the Minister for Works and Railways noticed the recent statement made in London by Mr. J. J. C. Bradfield, Engineer for Railways and Bridge Construction in New South Wales, that in building an underground railway for Sydney, the brickwork was completed at an average speed of 1,100 bricks per man per day? Will the Minister secure the services of some of the bricklayers engaged upon that work for Canberra?

page 5232

PAPERS

The following papers were presented : -

Petroleum Prospects, Kimberley District of Western Australia, and Northern Territory - Report, accompnnied by maps, plans, and photographs, by Arthur Wade, D.Sc. (Loud.), M.I.P.T., M.I.M.M.., A.R.C.Sc., F.G.S., F.G.S. (Amer).

Ordered to be printed.

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

No.55 of . 1924 - Commonwealth Public Service Artisans’ Association.

No.56 of 1924 - Commonwealth Temporary Clerks’ Association,

No. 57 of 1924- Australian Postal Electricians’ Union.

No. 58 of 1924- Federated Public Service Assistants’ Association.

No. 59 of 1924 - Commonwealth Storemen and Packers’ Union.

No. 60 of 1924- Professional Officers’ Association, Commonwealth Public Service.

Audit Act - Finance : Treasurer’s Statement of Receipts and Expenditure during year ended 30th June, 1924, accompanied by the Report of the Auditor-General.

Customs Act - Proclamation, dated 17th September, 1924, prohibiting exportation (except under certain conditions) of Butter and Cheese.

Improvement of Cotton Industry in Australia -

Report of Proceedings of Conference between Representatives of the Commonwealth and State Governments.

Report of Proceedings of Conference between Representatives of the Commonwealth and State Governments and of the Growers, Ginners, and Manufacturers.

Lands Acquisition Act - Notification of land acquired for Postal purposes at Iron Knob, South Australia.

Lands Acquisition Act- Notification of land acquired for Postal purposes at Canowindra, New South Wales.

Norfolk Island- Ordinance No. 2 of 1924- Melanesian Mission Lands.

Papua - Ordinance No. 5 of 1924 - Customs (Export) Tariff.

Public Service Act - Appointment of E. A. Poole, Department of Health.

Railways Act - By-laws - No.30 - No.31.

page 5232

PUBLIC ACCOUNTS COMMITTEE

The DEPUTY PRESIDENT (Senator Hewland). - I have received from Senator Elliott a letter dated 8th October in which be requests that he be discharged from attendance as a member of the Joint Committee of Public Accounts.

page 5233

SPECIAL ADJOURNMENT

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

.- I move -

That the Senate, at its rising, adjourn until to-morrow at 11 a.m.

This motion is submitted -with the intention of enabling the Senate to dispose of its remaining business, and thus allow honorable senators to return to their constituencies at an early date.

Question resolved in the affirmative.

page 5233

GRAFTON” TO SOUTH BRISBANE RAILWAY BILL

Senator O’LOGHLIN:

asked the Minister for Home and Territories, upon notice -

With reference to the construction of the Grafton to South Brisbane Railway, now before the Senate - how many of the Ministers, who attended the conference in 1020 referred to in the preamble of the bill, are now in office?

Senator PEARCE:
NAT

– Three.

page 5233

ZOOLOGICAL MUSEUM AGREEMENT BILL

Bill read a third time.

page 5233

LAND TAX ASSESSMENT BILL

Assent reported.

page 5233

WAR-TIME PROFITS TAX ASSESSMENT BILL

Bill received from the House of Representatives.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– I move-

That so much of the Standing and Sessional Orders be suspended as would prevent the bill being passed through all its stages without delay.

As we cannot deal with bills in the ordinary way at the close of a session, I am submitting the motion to enable the different stages to be taken in a way which would not otherwise be permissible under our Standing Orders. It is not proposed to go beyond the first-reading stage to-day.

Question resolved in the affirmative.

Bill read a first time.

page 5233

ENTERTAINMENTS TAX ASSESSMENT BILL

Message received from the House of Representatives, intimating that it had agreed to the amendment made by the Senate.

page 5233

INVALID AND OLD-AGE PENSIONS APPROPRIATION BILL

Bill received from the House of Representatives.

Motion (by Senator Pearce) agreed to-

That so much of the Standing and Sessional Orders be suspended as would prevent the bill being passed through all its stages without delay.

Bill read a first time.

page 5233

DRIED FRUITS EXPORT CONTROL BILL

Message received from the House of Representatives, intimating that it had agreed to the amendments made by the Senate in this bill.

page 5233

LOAN BILL (No. 3) 1924.-

Bill received from the House of Representatives.

Motion (by Senator Pearce) agreed to-

That so much of the Standing and Sessional Orders be suspended as would prevent the bill being passed through all its stages without delay.

Bill read a first time.

page 5233

DAIRY PRODUCE EXPORT CONTROL BILL

Message received from the House of Representatives, intimating that it had agreed to amendments 1, 2, 3, 6, 7, 8, 9, and 10, made by the Senate, had agreed to amendment No. 5 with a consequential amendment, and amendment No. 11 with an amendment as indicated in the annexed schedule, and had disagreed with amendment .. No. 4 for the reason assigned.

Ordered -

That the message be considered in Commitee of the Whole forthwith.

In committee : Clause 14 -

For the purpose of enabling the board effectively to control the export and the sale and distribution after export of Australian dairy produce, the Governor-General may by proclamation prohibit the export from the Commonwealth to Europe of any dairy produce except iu accordance with a licence issued by the Minister subject to such conditions and restrictions as the board approves.

Senate’s amendment. - Leave out “ to Europe.”

House of Representatives’ message. - Amendment agreed to with u consequential amendment made by adding the following subclause : - “ (2.) Nothing in this section shall apply to the export of dairy produce to any port between the ninetieth and one hundred and eightieth degrees of East longitude and north of the thirtieth parallel of South latitude.”

Senator WILSON:
Honorary Minister · South AustraliaHonorary Minister · NAT

– I move -

That the consequential amendment of the House of Representatives be agreed to.

In doing so, I must admit that Senator Gardiner foresaw more difficulties than some of us did when this measure was last before us. This amendment is one to which he then asked us to agree, but at that time I could not see my way to do so. Since then however, the matter has been further considered, and it is now found impracticable to adhere to the attitude I then took np. The exemptions in the consequential amendment made in another place apply mainly to butter aud cheese shipped to Java, Singapore, China. Japan, aud the Philippines. It is understood that these sales must be made forward on very short notice in order to meet the competition for this business. Any delay on the part of the board or others interested in the business might impoverish the Australian trade. Australia is now doing a large proportion of the trade in butter and cheese in those places. After a thorough scrutiny of the position, it has been found desirable to agree to an amendment on the lines which the honorable senator suggested last week.

Senator GARDINER:
New South Wales

– I am never anxious to say, “ I told you so.” Evidently there is a difference of opinion between the Prim© Minister and the members of the Country party in his Cabinet. At first the Prime Minister got the best of the position, but in this chamber the Country party succeeded in carrying an amendment. Now a compromise between them has been effected. Believing that the amendment of another place practically gives effect to my desire that there shall be no interference with the legitimate trade with the East that has been built up by a reputable firm of butter exporters, whose trade mark stands for all that is good, and that they will be able to conduct their business without applying to the board for a licence to do so, I have nothing further to add.

Senator FINDLEY:
Victoria

. I think that I understand the reason which actuated the Minister in moving that the further amendment made by the House of Representatives be agreed to. When the original bill was before another place, there was a disposition on the . part of a majority of the members there to exempt those who were engaged in the tinned butter export trade from the provisions of the act. It was not thought desirable that they should have to approach the board to obtain a licence to continue the business in which they had been engaged for years. With a view to overcoming the difficulty, and to place them outside the control of the board, the words “ to Europe “ were inserted in another place. No sooner had it gone through in that form than it was felt that the bill would become ineffective, because those who desired to export butter to Europe would first ship it to South Africa for transhipment to Europe, and thus defeat the object of the bill. For that reason the Minister in this chamber moved to strike out the words “ to Europe,” with a view to insert in lieu thereof an amendment, which would give those engaged in the tinned butter export trade the right to conduct their business without obtaining a licence from the board. I voted to strike out the words “ to Europe “ when the bill was before this committee, but when they were struck out the Government apparently was not disposed to seriously entertain an amendment to give those engaged in the industry that which another place is prepared to give them.

Senator Pearce:

– The committee was against it.

Senator FINDLEY:

– No division was taken. The bill has come back to the Senate in a form acceptable, not only to those exporters of tinned butter who wished to be free of control by the board, but also to those engaged in the export of fresh butter to the East. I do not object. I merely wish to show the roundabout way in which the Government pro- ceeds with its business. The proposal in its present form will, I am sure, meet with the approval of many business people who believe that the bill, as it left the Senate, would have seriously prejudiced their interests.

Senator O’LOGHLIN:
South Australia

– I should like a little further explanation from the Minister with reference to the amendment passed by the Senate, and which was disagreed to in another place. What safeguards have been inserted to prevent consignments of fresh butter shipped to, say, Singapore, from being re-consigned to Europe, and thus avoiding the provisions of the bill? Why should butter consigned to the East be exempt from inspection? It is all very well to say that reputable firms in Sydney have established a good connexion with the East. If they are exporting highgrade butter, there should be no objection to the provisions of the bill being applied to them.

Senator WILSON:
Honorary Minister · South Australia · NAT

– I think I can best reply to the honorable senator’s inquiry by stating that the board will watch trade with the East very carefully, and if at a later date it is thought necessary to introduce legislation to bring that trade within the provisions of the act, no doubt that will be done. The Government realizes that many difficulties will confront the board in organizing the dairy produce export trade, and it lias decided that there shall be no interference for the present with the trade between Australia and the East. With regard to the possibility of re-consignment from Singapore to Europe, I can only say that the activities of the board will be of such a character that if there is any attempt to evade the provisions of the act the necessary amending legislation will be introduced.

Senator Hoare:

– Will butter shipped to the East be under the same supervision, and will it have to be exported under the same brand as butter exported to England ?

Senator WILSON:

– Supervision by the Customs Department will not be interfered with in any way. Butter shipped to the East will be subject to the same scrutiny by the Customs officials as butter shipped to Europe.

Motion agreed to.

Clause 25 -

All moneys received by the board .. . shall be paid by the board into a separate account at a bank to be approved by the Minister.

Senate’s Amendment. - Leave out “ a bank to be approved by the Minister “, insert “ the Commonwealth Bank.”

House of Representatives’ Message. - Amendment amended by inserting after the words “the Commonwealth Bank” the words “or any otherproscribed bank.”

Senator WILSON:
South AustraliaHonorary Minister · NAT

– I move -

That the amendment of the Senate’s amendment be agreed to.

It may be necessary to safeguard advances made by arrangement with private trading banks for the payment of the. proceeds of sales into such banks. The amendment will bring clause 25 into line with clause 23.

Motion agreed to.

Clause 11 - (1.) There shall be an executive committee of the board consisting of the chairman of the board and four members of the board to be elected annually by the board.

Senate’s Amendment. - After “ board “ (second occurring), line 3, insert “two of whom shall be chosen from the representatives on the board electedby the boards of directors of the co-operative butter nnd cheese factories, one chosen from the two representatives elected by the boards of directors of proprietary butter and cheese factories, and one to be appointed by the Governor-General as the representative of persons engaged as sellers of dairy produce out of the Commonwealth, whether as agents or on their own account; such executive committee “.

House of Representatives’ Message. - Amendment disagreed to for the reason “ that it is desirable that the board should be unfettered in its choice of an executive committee to carry out such of the board’s functions as it desires to entrust to such a committee.”

Senator WILSON:
South AustraliaHonorary Minister · NAT

– I move -

That the committee do not insist on the amendment.

This matter has been carefully considered by the Government. It is felt that, as the board will have great responsibilities, it should be free to select its most competent members for its executive. If the amendment bc insisted on, it may be difficult, and perhaps impossible, to appoint the most suitable executive.

Senator DUNCAN:
New South Wales

– The amendment which the other House has struck out of the bill was inserted in it, at my instigation, by this committee when the measure was previously before us. The case that I made out was so strong that the Minister, who i3 now urging the committee not to insist upon its amendment, agreed to its incorporation in the bill, thus removing the necessity for stressing the desirability of having upon the executive a representative of the selling interests. I do not wish to precipitate a dispute on a matter of this kind, but I still feel that it would be in the best interests of the general scheme for the marketing of our dairy products if the executive were as representative as it is possible to make it. If the impression is that the other interests would not secure proper representation were a representative of the selling interests to be placed upon the executive, I point out that that body could be enlarged. After all, the executive will do the work arising between the infrequent .meetings of the board. I therefore urge upon the Government the desirability of enlarging the executive in order to give representation to the selling interests without prejudicing the cooperative interests.

Senator ELLIOTT:
Victoria

.- I am sorry that the Government has nob seen fit to stand by the bill as it left the Senate. I move -

That the following words he added to the motion : - “ but has made the following alternative amendment - In lieu of the words disagreed to insert, ‘ one such member’ to be chosen from the two members elected by the proprietary butter and cheese factories ‘.”

The proprietary interests fear that they will be totally disregarded if the matter is left open.

Senator H Hays:

– Why should they bet

Senator ELLIOTT:

– The co-operative interests will be in the majority on the board.

Senator Wilson:

– They are responsible for 75 per cent, of the butter produced.

Senator ELLIOTT:

– Quite so; but those who produce 25 per cent, ought not to be entirely neglected.

Senator Wilson:

– They will not be.

Senator ELLIOTT:

– There is nothing in the bill to ensure that. I think it is fair to say that one member shall represent the proprietary interests. The cooperative representatives upon the board will be in the majority, and they can elect an executive to suit themselves.

Senator WILSON:
South AustraliaHonorary Minister · NAT

– I ask Senator Elliott not to persist with his amendment.

I stated just now that this is a new scheme. I am of the opinion that it will be found necessary to make alterations, perhaps even as early as next year. With such a huge undertaking it cannot be expected that the conditions will be ideal from the commencement. By showing a desire to dictate to the board in regard to the appointment of the executive,, we are evidencing almost a mistrust of it. We should not cramp the board in its appointment of an executive. I give Senator Elliott the assurance that any variations that are thought to be necessary will be given very careful consideration, and, if necessary, fresh proposals will be brought before the Senate. The Government is prepared to trust the board to appoint the very best executive. It is quite outside my province to give an assurance that any particular interests will be represented.

Senator ELLIOTT:
Victoria

.- In view of the very definite assurance of the Minister, I ask leave to withdraw my amendment.

Amendment, by leave,, withdrawn.

Motion agreed to.

Resolutions reported; report adopted.

page 5236

STATISTICAL BUREAU (TASMANIA) BILL

Second Reading

Debate resumed from 3rd October (vide page 5098), on motion by Senator PEARCE

That the bill be now read a second time.

Senator FINDLEY:
Victoria

– I do not intend to delay this bill. I merely rose on Friday with a view to obtain the fullest information as to the policy of the Government in relation to the statistical work now being performed in most of the states. We were told on Friday that the Commonwealth Government had entered into an agreement with the Government of Tasmania which would result in a saving to both the Commonwealth and the state. ‘ If I understood Senator Pearce correctly the greater part of the statistical work now undertaken by the State of Tasmania will in future be carried on by the Commonwealth Statistician, and the preparation of minor statistics of more or less importance to the state will be undertaken by the state. Senator Pearce also said that some of the officers now engaged in the statistical branch of the state service would be taken over by the Commonwealth. I am anxious to learn whether those who are thus taken over will automatically come under the provisions of the Commonwealth Public Service Act, and secure all the advantages now enjoyed by permanent officers of the Commonwealth Service.

Senator Pearce:

– They will not all be taken over. I understand that one officer employed in the state statistical branch is a temporary employee. He will be taken over as a temporary employee.

Senator FINDLEY:

– Do I understand that those who are permanently employed in the Tasmanian Statist’s office will be permanent employees of the Commonwealth entitled to all the advantages now enjoyed by other permanent Commonwealth officers?

Senator Pearce:

– That is provided for in the agreement.

Senator FINDLEY:

– Then I do not wish to say anything further on the bill.

Question resolved in the affirmative.

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

page 5237

INCOME TAX ASSESSMENT BILL

Secondreading.

Debate resumed from 3rd October (vide page 5103), on motion by Senator Pearce.

That the bill be now read a second time.

Senator GRANT:
NEW SOUTH WALES · ALP

– This bill affords me a favorable opportunity to state some of the basic objections to the taxation of incomes. It was in 1915 that the Commonwealth Parliament first decided to impose this form of taxation, and since then, Parliament has passed at least eight or nine amending bills. Although this tax was first imposed in war time, its unfairness has, to some extent, been recognized, because most of the amending bills have had as their objective the reduction of the amount extracted from the taxpayers. By one amendment moved in the Senate, and subsequently agreed to by the House of Representatives, taxpayers were relieved of the liability to pay taxation upon the value of the homes they owned and occupied, and that excellent proposal has probably had the very good effect of re ducing the amount of revenue received from income taxation, by something in the vicinity of £2,000,000. According to a statement placed in our hands some time ago, it is estimated that the income tax will yield £11,057,489 this year despite all the amendments to which Parliament has agreed. One of my objections to the taxation of incomes is that it is a direct levy upon industry. The individual or company rendering the greatest service to the community is penalized to the greatest extent. It is an entirely wrong system of taxation, and for that reason, if for no other, I should ask the Senate to reject the bill. I realize, however, that this form of taxation is favored by a large volume of public opinion, not only in Australia, but elsewhere, and that all that one can do is to attempt to minimize its defects. Another serious objection to income taxation is its excessively inquisitorial character. I deny the right of any one to inquire into people’s affairs to the extent to which they are inquired into by those entrusted with the collection of the Federal income tax. I do not wish it to be inferred that I claim that any officer of the Taxation Department discloses to the public the position that any taxpayer occupies, but, as a matter of fact, there is a considerable number of persons engaged in the Taxation Office, who have access to papers disclosing the private affairs of taxpayers. Income taxation can be evaded to a considerable extent. In fact, it lends itself to evasion. It is an easy matter for the Income Tax Commissioner to ascertain exactly what is earned by a man on a straight-out salary, but men in business, or men engaged in casual work can, and in my opinion do, defy the Commissioner to properly assess the amount of tax they should pay in proportion to their incomes. I do not blame them. Those who can escape paying so nefarious a tax ought to be permitted to escape.

Senator Thompson:

– Does the honorable senator recommend breaking the law?

Senator GRANT:
NEW SOUTH WALES · ALP

– It is a bad law when it immediately pounces upon any one who dares to render a service to the community, and penalizes him in proportion to the value of the service he has rendered. It is an excessively stupid method of taxation that should not be tolerated in a civilized community, especially when, without much effort, we could find other means of raising revenue that would fall fairly and squarely on everybody. It has a tendency to induce people to make statements which are npt strictly in accordance with facts. I do not suppose any one knows the exact number of officers who have left the Land and Income Taxation Department to set up in business as taxation experts, merely because they have seen the weaknesses nf the act, and the possibility of conducting a lucrative business in showing victims how they can escape taxation. Measures of this kind which lend themselves to proceedings of this description should not be countenanced. Taxation ought to be so simple that every one would know exactly what he had to pay. [ do not think there is one member of this chamber or more than one or two honorable members of another place who, without the aid of the ready reckoner supplied by the Commissioner of Taxation, and the assistance of some of those costly calculating machines to which reference has been made, are capable of correctly ascertaining the taxation payable by a person receiving income from property and from personal exertion. The. Commissioner of Taxation states in his report that he was obliged to send to Switzerland for a number of costly calculating machines to assist his officers in unravelling some of the intricate problems which arise in assessing taxation on the basis provided in our taxation laws. It was never’ contemplated that any such equipment would be required to calculate the income of companies or individuals.

Senator PEARCE:
NAT

– The department is using up-to-date methods.

Senator GRANT:
NEW SOUTH WALES · ALP

– Possibly the machines are’ necessary to do what is desired, but they are highly unproductive, as we are informed by the Commissioner that, although he bad to import costly calculating machines - there is £8,000 worth in the central office alone - the benefit to the revenue is negligible. Could anything be more foolish or ridiculous than to have an act upon the statute-book which involves the provision of expensive machinery and highlyskilled labour merely to unravel problems which when solved do not result in any benefit to the Commonwealth ? Pro visions which involve unnecessary expense are not only valueless, but a hindrance in effectively carrying out the act. Another exceedingly objectionable feature of the bill is that which illustrates the persistency and determination of the Go,vernment in continuing their fatuous idea of taxing farmers and dairymen in proportion to the increase in the number and value of their live stock. A Dairy Produce Control Board has recently been established to enable producers to obtain higher prices for their products, but after doing that, and providing for an exemption in proportion to the expenditure incurred on wire netting, dairy farmers and stock-owners are to be taxed in the way I have mentioned. A sheepbreeder, who is continually investing capital in his. business and who increases the value and number of his sheep will- under the provisions of this bill be pounced upon by the Commissioner of Taxation. This method of taxation is entirely wrong, and should be abandoned. It was my intention to quote from Henry George’s Progress and Poverty, and to set out the proper canons of taxation, but in order to assist the Government to expedite business, and at the request of my leader, I shall be content on this occasion to refer honorable senators to four brief paragraphs on page 2S0 of the publication I have mentioned. It is necessary to keep the facts set out by Henry George as prominently as possible before honorable senators, so that possibly at a later date they will support a proposal to at least give partial effect to the principles he has outlined. One or two provisions of the bill are worthy of commendation. The proposal to increase the exemption from £200 to £300, although it is in conflict with the platform of the Labour party, is one which I shall support, because I feel sure that as soon as the members of our party meet in conference they will recognize that on account of the high cost of living and other factors, the amount of exemption embodied in our platform is altogether too low. I should like to see the exemption substantially increased, and I would not object to the amount being raised to £5,000, as is provided in the Land Tax Assessment Act, provided the exemption in that act were reduced to £300. When the bill is in committee it is my intention to move to delete those clauses, which impose taxation upon increases in live stock. It will be remembered that I submitted an amendmentto that effect on a previous occasion, but it was then thought unwise to accept it. It would simplify matters considerably if the Commonwealth Government retained the whole of the revenue from customs and excise, and ceased collecting income taxation. If they did that they would not be the collecting machines for the states.

Senator Pearce:

– The states are collecting for us.

Senator GRANT:
NEW SOUTH WALES · ALP

– I am speaking of Customs duties, in the collection of which a large number of officers are employed. Prom the revenue derived in that way we hand over to each of the states 25s. per head per annum. It would be better to delete that provision of the law, and retire from the field of income taxation. There is another matter which also should receive our attention. It is not proposed to alter the present exemption of £40 in respect of children under sixteen years of age. Considering the high cost of living and the heavy rents which have to be paid, that amount should be substantially increased. In committee I shall move to increase it to at least £60, with an additional £100 for a wife. If that were done, it would mean that the exemption would be increased to a little beyond the Government’s intention. The position to-day is altogether different from what it was when thethen Government introduced a bill to tax incomes, and made the exemption £156. By very slow degrees that exemption was raised to £200. It is now to be £300, but it should be higher. Because of the majority behind the Government, I do not suppose that it would be of any use to move that it be increased. There are other proposals in this bill which should be struck out. For instance, clause 4 provides -

Section 16 of the principal act is amended -

  1. by omitting sub-paragraph (ii) of paragraph (b) thereof and inserting in its stead the following sub-paragraph : - “ (ii) the paid-up value of shares distributed by a company to its members or shareholders to the extent to which the paid-up value represents the capitalization of the whole or any part of the profits of the company, derived subsequent to the first day of July One thousand nine hundred and fourteen, except profits -

    1. derived by the company during the financial year commencing onthe first day of July, One thousand nine hundred and twenty-two, or during an accounting period substituted therefor by the Commissioner under section thirtytwo of this act or in any subsequent financial year or accounting period, and upon which thu company is not required by the Commissioner to pay (or if so required has paid or pays) tax or additional tax under section twenty-one of this act; or

That is a proposal to tax bonussharesshares which have been distributed out of revenue, a reserve fund, or income on which tax has been paid, and which are not liable to income tax on the part of a shareholder. Bonus shares granted from a reserve fund are really paid out of capital, and at this stage it is not competent for the Senate to tax capital. Incomes transferred from a profit and loss account, or reserve fund, on which tax has been paid, is capital. That has been admitted time after time in connexion with the War-time Profits Act. It is quite in opposition to section 55 of the Constitution to tax capital in this way, but no doubt other bills could be introduced under which capital could be taxed. Generally speaking, the effect of this amending bill is in the right direction, bub it does not go far enough. Apparently, its net effect upon incomes obtained from property and from personal exertion will be as follows: -

Personally, I disagree entirely with the system of taxing property at a greater rate per £1 than income derived from personal exertion. A man who invests money in property generally employs labour, and benefits the community, but because he does that he is penalized. If a man builds cottages, which are needed to meet the requirements of almost every township, and certainly every large city, throughout Australia, and obtains his income from his tenants, he is compelled to pay more taxation on that income than if he derived it from personal exertion.

The reason for that is that Parliament, as a whole, is deadly hostile to any person who attempts to escape from his landlord. Parliament believes in the citizens of this country paying their rent regularly, and is opposed to their owning their own homes. Consequently, if a person builds homes for others to buy, he must pay heavier taxation. The result is that many people are prevented from owning the homes in which they dwell. That -is a wrong attitude to adopt. As I do not suppose that any amendment to make the same rate apply to incomes from personal exertion and from property would receive the approval of this chamber, I may not move in that direction, but such action should be taken. I look upon the man who 1 invests money in an industry as one who is assisting his country. Companies, such as the Broken Hill Proprietary Company, and many others which could be mentioned, employ much labour, and pay large sums of money in wages, and, undoubtedly, tend to increase the wealth of the country. Yet Parliament employs a skilled Commissioner, with an army of officers under him, as well as costly equipment, to watch those companies most carefully and see that they do not evade payment of their taxes. The more a man does to develop the country, the more he is penalized. That ia a wrong system of taxation, but I have no hope of its being altered while the present Government remains in power. I am glad to accept the small reductions which have been made, and only regret that they do not go farther. I have received numbers of communications from different classes of citizens, all of whom appear to be opposed to certain sections in the present act. Those engaged in the gold-mining industry in Western Australia are asking that in this bill they may be granted considerable concessions. If I had my way, I should give them all they desire, and a great deal more. We should now, as far as possible, reduce this taxation, and at the earliest possible moment wipe it out altogether. At present, that appears to be impossible, but when the bill reaches the committee stage, we should do all that we can to remove taxation from those who are doing something to assist the industries of this country. There are large numbers of unemployed in our midst today, but if a man dares to employ them he will, under this bill, be fined for doing no. With things as they are, I am only surprised that there are not more unemployed in Australia. I know that many people think that the income tax system is right. Their minds have been saturated with the poison of socalled economists, such as Adam Smith, and John Stuart Mill, and men of their type, whose opinions have been set aside and exploded by Henry George. Many people do not agree with Henry George. They have a great desire to fleece the public, and, apparently, Parliament is in the right mood to continue to perform that operation. Personally, I am not. In this bill we have an opportunity to do a real service for the working community of this country. I mean not only those who work manually, but also those who devise schemes and lay themselves out for the continuance of enterprises to employ large numbers of people, and generally to assist in the development of the Commonwealth. Unfortunately, under this legislation, these are the people whom we seek to penalize, but when we reach the committee stages of the bill I shall endeavour to secure certain amendments’ to various clauses so as to minimize as much as possible the effect of the measure.

Senator DRAKE-BROCKMAN:
Western Australia

– I shall not follow the bad example set by Senator Grant and speak at very great length on this measure.

Senator GRANT:
NEW SOUTH WALES · ALP

– I rise to a point of order. Senator Drake-Brockman is entirely in error when he says that I spoke at very great length, and that I showed a bad example. As a matter of fact, I condensed my remarks within the space of about half an hour, and I spoke with remarkable lucidity.

The DEPUTY PRESIDENT (Senator Newland). - That is not a point of order.

Senator DRAKE-BROCKMAN:

– I hope that the very few comments which I shall make with reference to the bill will also be lucid and logical. The majority of the members of this chamber are anxious that the work ahead shall be accomplished in the shortest possible time, and, but for the fact that an important principle is involved in the bill, I should not have intervened in the debate at all. From time to time in this chamber I have expressed very definite views concerning retrospective legislation. I do not approve of it. I have always strongly condemned it, andI take up the same attitude to-day. It is a fundamental principle of all British law that there shall be no ex post facto legislation ; that when a law is put upon the statutebook all subjects of His Majesty shall know definitely what that law is, and how they are to comply with it. If we admit this pernicious principle of retrospective legislation, no person in the community will know where he stands, because an act done to-day and allowed by the law may, to-morrow, under amending retrospective enactments, be illegal.

Senator Pearce:

– In the true sense of the word, there is no retrospective legislation in this bill.

Senator DRAKE-BROCKMAN:

– I hope to be able to show the Minister that there is. If I can convince him that I am right, I hope that he will agree to the very small amendment which I shall submit in committee for the purpose of eliminating this very objectionable feature of the measure. Having stated as succinctly as possible my objection in principle to retrospective legislation,, let mo turn to the act and see where it comes in. If honorable senators will turn to section 16 of the principal act, they will find this provision in siib-paragraph ii of paragraphb -

The assessable income of any person shall include -

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.

That is the law to-day. This amending bill proposes in clause 4 to alter the wording of that section of the act very considerably.When introducing the bill in another place the Treasurer remarked that these amendments were merely explanatory of existing legislation. I remind the honorable gentleman that it is not the function of Parliament to explain its own measures. We have established courts for that purpose, and it is the quintessence of absurdity for the Treasurer or any one else to say that words or phrases in certain legislation are to be interpreted in a certain way. Parliament meant what it put on the statute-book, and nothing else. What the official responsible for the drafting of legislation intended, or what the Government had in mind when the bill was passed, does not matter in the slightest degree. The only thing that matters is the actual wording of the enactment. It must be accepted that Parliament meant what an enactment provides, and nothing else. If we depart from that principle, heaven alone knows where we shall get to. If it were possible for members of the High Court to read Hansard to find out what each individual member said or thought about legislation under review there would be hopeless confusion. But, of course, the judges of our courts can be guided only by certain principles. They cannot depart from the enactment itself. Therefore, we are driven to the conclusion that Parliament meant what it put on the statute-book, and that only. The Treasurer has stated that what is now proposed is an explanation of what we have already done. It is proposed in paragraph h of clause 4 to omit subparagraph ii which I have just read, and substitute for it something entirely different in these words -

The paid-up value of shares distributed by a company to its members or shareholders to the extent to which the paid-up value represents the capitalization of the whole or any part of the profits of the company, derived subsequent to the 1st day of July, 1914, except profits -

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

upon which the company has paid or is liable to pay income tax for any financial year prior to the financial year commencing on the 1st day of July, 1923;

derived by the company during the financial year commencing on the 1st day of July, 1922, or during an accounting period substituted therefor by the commissioner under section 32 of this act or in any subsequent financial year or accounting period upon which the company is not required by the commissioner to pay (or if so required has paid or pays) tax or additional tax under section 21 of this act; or

Any one who tells me, as the Treasurer told honorable members in another place that this is merely an explanation of paragraph ii of section 16 is not stating the position correctly, for it means something entirely different. It changes the whole principle of the act for a start. But since my purpose is not to occupy the time of the Senate at great length, I shall not further stress that point, but will now deal with some of the effects of the proposed amendment. If a company has accumulated profits since 1914, and under the existing law has distributed those profits, except in certain cases, such distribution is not liable to income taxation.

Senator PEARCE:

– Does the honorable senator mean distributed as profits 1

Senator DRAKE-BROCKMAN:

– N o. I mean distributed in the form of bonus shares. If such profits were distributed last week as bonus shares they were not liable to pay income taxation as the law stands to-day. But if this bill goes through unamended, any such distribution made last week or last year will, by virtue of this enactment, be liable to taxation. In other words, as I have endeavoured to show, this bill contemplates retrospective legislation. If it were proper and lawful under the existing law for companies to distribute accumulated profits in the shape of bonus shares without having to pay taxation, those companies should not under the provisions of this bill be called upon to pay taxation, because if the companies had retained their accumulated profits or used them as capital they would not have been called upon to pay income taxation upon them, nor would the people into whose hands they had passed. Now we propose that certain actions, which are allowable under the law to-day, shall not be allowable under this amending legislation. The principle is wrong. It may be perfectly right for Parliament to say that all future distributions of this kind shall pay income taxation. I should have no complaint to make if the Government brought down such a proposal as that, but it is wrong to penalize individuals and companies for having done what the law allows them to do. This pernicious principle should not be tolerated by the Senate. There is a good deal more that I could say on this matter, and on the principle underlying it, but I think I have said sufficient to convince honorable senators that the proposal is very improper. As soon as I had studied the bill I interviewed the Prime Minister and certain members of the Government.

I received an assurance that the retrospective portion of this enactment would be taken out. When I first read clause 16 I was of the opinion that the retrospective portion had, in fact, disappeared; because it will be noticed that sub-clause 4 of that clause reads: -

All the amendments effected by this act (except those effected by sections 2 and 15), other than those specified in the last three preceding sub-sections, shall apply to assessments for the financial year beginning on the first day of July, One thousand nine hundred and twentyfour, and all subsequent years.

I thought that that was perfectly satisfactory; but I had overlooked section 13 of the principal act, which ‘provides : - (1.) Subject to the provisions of this act, income tax shall bo levied and paid for each financial year upon the taxable income derived directly or indirectly by every taxpayer from sources within Australia during the period of twelve months ending on the thirtieth day of June preceding the financial year for which the tax is payable.

Therefore, the objectionable retrospective provision is retained for a year and three months. If it is wrong to have it for two, three, or four years, it is wrong to have it for a year and three months.

Senator Thompson:

– I suppose the reason for this is that the department is behind with its assessments.

Senator DRAKE-BROCKMAN:
WESTERN AUSTRALIA · NAT

– BROCKMAN. - That is not the reason. I am quite sure that the Minister will say that the explanation is that the assessments that are made this year will apply to the financial year that has just closed, and to that extent they are all retrospective. There is, however, a fundamental difference. Under paragraph ii of sub-section b of section 16 of the principal act, it was lawful to do certain things, and in many cases those things were done, because they were protected by the law as it then stood. Now it is proposed to. tax, not merely income, but also sums of money that have been allowed to accumulate, and which can be still kept in their accumulated form. It is perfectly legitimate to apply retrospectively for one year, assessments of incomes that aTe definitely described as incomes in existing legislation. But it is entirely’ wrong toassess retrospectively when the definition of “ income “ is altered to include that which has not formerly been regarded as income. For that reason I strongly object to the retrospective aspects of this bill, and I give notice that in committee

I shall move a new sub-clause to follow sub-clause 4 of clause 16, reading -

Section 4 (h) of this act shall not apply to the paid-up value of shares distributed prior to the commencement of this act.

That will have the effect of applying this law to all future distributions of bonus shares, and will prevent it from applying to any past distributions.

Senator NEEDHAM:
Western Australia

– I listened attentively to the very instructive speech that was delivered by Senator Drake-Brockman, and with him I am of the opinion that this legislation will operate retrospectively. I am advised that certain citizens availed themselves of the law as it stood, and secured a verdict from the High Court of Australia. If I read the bill aright, when it becomes an act those citizens will have to pay the money which the High Court said they should not pay.

Senator Pearce:

– There is no judgment of the High Court on this point.

Senator Drake-Brockman:

– The same principle was involved.

Senator NEEDHAM:

– Probably the judgment has reference to the Lessee Tax Bill. By clause 2 of this bill- (1.) Section 2 of the .principal act is amended by inserting at the end thereof the following proviso- “ Provided that the acts repealed by this act shall, subject to this act, continue, and be deemed to have at all times continued, in force for all purposes in connexion with income tax payable for any financial year prior to the first day-of July, One thousand nine hundred and .twenty-two.”

To my mind that will be retrospective, nob only to 1922, but to many preceding years. Then again, in another part of the bill we find the years 1921 and 1923 mentioned. I agree with Senator Drake-Brockman that retrospective legislation is’ always pernicious. In this case., I think, it is vicious if it operates over a number of years. I hope that in committee the bill will be -amended so that it will not be retrospective. The Leader of the Senate (Senator Pearce) interjected a little while ago that it was not of a retrospective nature. I shall listen attentively to his reply. If he can show that the clauses referred to by Senator Drake-Brockman and myself are not retrospective I shall support the bill. I believe that he has a task that is beyond him. He cannot alter the meaning of the language in those clauses.

Senator DUNCAN:
New South Wales

– I do not make any apology for giving to this bill the attention that I think it deserves. Any suggestion that we should rush legislation through without the fullest consideration merely because we are hastening towards the end of the session does not appeal to me. This measure should have been presented to us much earlier. It is not fair that honorable senators should, in the last days of the session, have thrust upon them such an important measure. It is practically impossible for us to give to it the earnest and serious consideration expected of us by those who sent us here. I have been obliged to devote the whole of the week-end to an investigation of the provisions of the bill. I am more than amazed at certain of its features, and I am. astonished that the Government has made no attempt to rectify certain abuses that were discovered in the administration of the principal act. The- bill should have been introduced at a time when it would have been possible for adequate consideration to be given to it, not only by honorable senators, but also by those whom it will affect, in order that they might make representations for its improvement. Be.presentative government necessarily means the representation of those who elect members to this Parliament. If legislation of such importance is introduced at a time when it is impossible for those whom it will affect to place before us their representations the very principle of representative government is attacked. This bill is of a type to which the Senate of recent years has become rather accustomed. From time to time amending income tax legislation is introduced, not so much with the object of establishing new features as with the object of remedying certain defects in the existing legislation or peculiar phases of administration. Of course, I know it is to be expected that the administration of any act imposing direct taxation must cause a certain amount of dissatisfaction to those who have to pay the tax. The present administration of the Income Tax Act, however, because of the feeling of uncertainty and insecurity which it creates in the minds of all sections of the community, has led, not only to dissatisfaction, but, also, in many respects, to absolute consternation. Senator Drake-Brockman has told us that the necessity for certainty in the law is absolutely fundamental. He has told us that, under British law, the subject should be certain that, if he acts on the law as it exists, it will not be made a trap for him. When it is proposed to alter the law by an unfair retrospective amendment, in additon to new restrictive provisions such as are contained in this bill, the consequences must be very serious for a large number of taxpayers who have exercised their rights under the existing law. We are informed that one of the purposes of this bill is to make the act clearer, but, in the opinion of those most vitally concerned, it causes increased difficulty in its construction, and renders inevitable increased cost in administration. Further than that it is considered that what Senator Drake-Brockman has so fittingly called ex post facto legislation is not only contrary to all our ideas of justice, but actually has a tendency to prevent the carrying out of desirable commercial operations involving au increase of capital, with a consequent extension of business and development, leading to subsequent national progress. The Commissioner of Taxation has represented to the Treasurer that this bill is merely explanatory of the meaning of the sections of the Income Tax Assessment Act 1922-3 which it proposes to amend. It is clear that it is not so with respect, at least, to certain of the provisions amending section 16 of the principal act relating to dividends and bonus shares. Those amendments are contained in clause 4, paragraphs g and h of the bill, and are, by clause 16 (1) of the bill expressly made retrospective to include assessments on income of the year 1st July, 1921, to 1st July, 1922, and of subsequent years. I propose to examine these suggested amendments very briefly, and to show to the Senate that vital alterations are being made under cover of what is said to be merely an explanatory measure. I shall deal with the amendments in the order in which they appear in the bill. It is obvious that the amendment in clause 4, paragraph g, proposes a material cutting down of the exemption at present existing. The expression ‘ ‘ capital assets ‘ ‘ is much wider than “ assets which were not acquired for the purpose of resale at a profit.” Furthermore, this amendment will enable the commissioner, if any resale of assets at a profit has been made, to put the taxpayer to considerable expense in fighting an incorrect assessment. Section 16 b ii, as it now stands, exempts from taxation the value of shares issued in consequence of the capitalization of all profits “ other than profits being assessable income,” which the company is liable to include in its return for the purposes of “ its current assessment.” Clause 4, paragraph h of the bill includes all profits derived subsequently to 1st of July, 1914, capitalized and distributed by a company to its members or shareholders iu the form of shares to the extent of their paid-up value, unless such profits come within one or more of the exemptions 1. 2, 3, and 4 of clause 4, paragraph Ji. Putting it another way, under the existing section 16 S ii the shareholder is only liable to tax on such of the capitalized profits of the company, distributed in the form of bonus shares, as are “ taxable income of the company for the year in which the shares are distributed, or taxable income for the year preceding the year of distribution “ of the shares. The proposed new sub-section 16 h makes all capitalized profits of the company, derived at any time after 1st July, 1914, and distributed as bonus shares, taxable income of the shareholder, save such of those profits as fall within the limited exceptions set out in sub-paragraphs 1, 2, 3, and 4 of clause 4, paragraph h. I mention this to bring home the point so effectively made by Senator DrakeBrockman when he was speaking of bonus shares, and the unfairness of the ‘ present proposal. This amendment completely reverses the principle underlying the section as it stands, namely, that all profits not expressly made taxable are exempt, by providing that everything not expressly exempted is taxable. This is a vital alteration, and cannot by any stretch of imagination be regarded as merely explanatory. That this is not merely a machinery measure, but is an actual substantial cutting down of the existing exemptions, and an extension of the shareholders’ liability to tax on bonus shares is the view of Mr. Owen Dixon, K.C., whose opinion thereon has been obtained. He advises that by the omission of paragraph of clause 4 from the operation of section 15 (1) of the bill, which is the retrospective section, the retrospective effect is only reduced, and not eliminated, because paragraph 4 of clause 16 makes the amendment 4 h of the bill apply retrospectively to assessments of income derived during the year commencing the 1st July, 1923, and after.’ The result is that bonus shares which have been distributed under the existing act between the 1st of July, 1923, and the commencement of the bill are retrospectively included as part of the shareholders’ assessable income, and are taxable so far as they do not fall within the exceptions to paragraph h of clause 4. I consider that an unequivocal amendment should be added to clause 16, expressly stating that paragraph h of clause 4 shall not apply to the paid-up value of any shares distributed before the date of the passing of the bill, and not then subject to income tax under section 16 ii of the principal act. Numerous companies after taking counsel’s opinion on the existing law, have capitalized the whole or part of their profits, not being assessable income liable to be included in their returns for. the purposes of their “ current assessments “ - that is, for the year of distribution, or for the year preceding the distribution, and have distributed such capitalized profits to the shareholders in the form of paid-up shares. These shareholders have accepted the shares relying on the existing law that they were not liable to pay tax on them. If the amendments under clause 4 paragraph h are intended to be merely explanatory, then they should be modified so as to have that effect only, and in any event, an express provision should be included in the bill making it quite clear that shares which have been issued by any company to its members or shareholders prior to the date of the passing of the proposed bill, and which were not then taxable in the hands of the shareholders, are not made liable to tax by the bill. Senator Drake-Brockman has already intimated that he intends to move an amendment to give effect to the objections he has to this part of the bill. I also intended to move an amendment for the same purpose, and if his proposal does not suit me I shall move another. I quite agree with the honorable senator when he describes this proposal as being the introduction of a “ pernici’ous prin ciple of retrospective legislation.” If a law is wrong, then Parliament should certainly amend it, but to cause those who acted in all good faith under the legislation as Parliament has passed it, and as they found it, to suffer by retrospective action, not only outrages one’s sense of justice, but also establishes a very dangerous precedent, that some succeeding Government may feel tempted to act upon with disastrous results to our commercial prosperity. I am not referring particularly to my honorable friends opposite. Governments come and governments go. Retrospective legislation is repudiatory legislation, and should not be tolerated for one moment.

Senator Gardiner:

– The present Government has created precedents for all the worst forms of legislation.

Senator DUNCAN:

– It has done so i.n this respect. Now I pass on to another aspect of this repudiatory legislation, as I regret to have to term it, affecting an industry to which it is not proposed to give relief under this bill, but which in certain respect is, in my opinion, as fully deserving of relief as any of its other allied industries. I refer to the coal-mining industry. Under this bill gold-mining companies are very properly, and for the purpose of assisting the industry, exempted altogether from income taxation. Under the Income Tax Assessment Act 1915, section 18, paragraph i, it was provided that “the total amount of calls paid in the year in which the income is derived shall be deducted in the case of calls on shares in a mining company or syndicate carrying on mining operations in Australia.” This action was taken with a view to the encouragement of all mining, coal mining being included. The Parliament of that day very properly realized that abundant supplies of coal at a reasonable price were absolutely essential for our industrial development. Honorable senators will note that this deduction could only apply to those coalmining concerns which not only did not produce a profit, but found it necessary to make calls upon their shareholders from time to time for the provision of working capital. These non-profitable mines employed some thousands of workers, and distributed in wages a very large amount of money each year, with a consequential benefit to many other industries. The payment of calls is not at any time .a pleasing matter to shareholders, but when _ these calls were allowed as a deduction under the Income Tax Assessment Act, hundreds of shareholders were content to carry on, hoping that sooner or later the mines in which they were interested would show a profit. Consequently the work of developing these mines went on. But in October, 1922, an amending Income Tax Assessment Act was passed, section 23, subsection i of which limited the deductions allowable to “so much of the assessable income as is paid in calls on shares in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, or rare metals.” Honorable senators will note that the word “ coal “ was left out, without dating such omission back, to say 1st July, 1921, which action should have been taken in lieu of notice by the Government of its intention to depart from the moral agreement with all coal-mining concerns. As a result of this action considerable hardship has resulted to those shareholders who paid calls believing they could deduct them from their income tax returns. Let me, without mentioning any names, give to the Senate the particulars of one case which has come under my notice. The taxpayer concerned has stated the facts as follows: - On 31st March, 1921, I was chairman of a coal company which had made a profit in the form of development underground and plant, but not in actual money. Tn June, 1921, a dividend was declared, and on the same day a call was made payable with which to pay the dividend -

Honorable senators will realize that this is quite a common practice, and is perfectly legitimate -

As I was the largest shareholder my dividend came to £3,23S Ms., and my call to £3,230 12s. The company was registered under the New South Wale’s Sio Liability Act, which provides that calls are payable on the second Wednesday of the month, and that notice of call must’ be given. Therefore, dividend and call were made payable on 13th July, 1921, little dreaming of what legislation was going to be passed in October, 1922, fifteen months afterwards. On 13th July, 1021, 1 received a cheque for the difference, namely, £8 2s. In my return for my income from 1st July, 1921, to” 31st June, 1922, I included the £3,238 dividend as income, and deducted the £3,230 call in accordance with the law as it stood on 30th June. 1922. The Taxation Department, whilst gladly assessing me in May, 1923. for taxation on the dividend, refused to allow me to deduct the call, and claimed an additional £1,0SC. which I refused to pay. One of the grounds for my objection was that it amounted to repudiation on the part of the Commonwealth Government, and that such repudiation was against public policy. Mr. Hulme, the then Deputy Commissioner, classed it as one of the hardest cases he had ever known, and stated that had I received the £8 2s. on 29th June, 1921, I would not owe the department £1,086, but as I received the £8 2s. on 13th July, 1921. I did owe the department the sum named. In support of this contention, ,he cited Act No. 37, assented to on the 18th October, 1922, relying on section 13, subsection 1 in conjunction with section 32, subsection 2. For eighteen years I have employed a large number of men in coal mining, and after deducting gains from losses my net loss has been considerable. But losses from errors of judgment don’t hurt like this £1,086. The men have, generally speaking, given me a fair deal. I look to the Government of Australia to do the same.

This taxpayer made every possibleprotest against the injustice which he very properly ‘ felt he was suffering under, but, failing an amendment of the act, it is impossible for relief to be afforded in his and other similar cases.. The effect of the Government’s action in excluding calls paid in coal-mining companies as a deduction under this section of the acthas had a more disastrous side from the stand-point of national development than its effect upon individual citizens. It has largely been the cause of a number of coal mines shutting down altogether, and it has certainly had the effect of preventing the opening up and the successful development of many others. Consider the effect of this upon employment, and industry. With these facts before him the Minister should accept an amendment, which I shall move, allowing the deduction of calls paid in coalmining concerns. More especially should he be willing to’ do this when wo remember that the Income Tax Assessment Act has given this relief to coal’s great rival - oil. I refer to clause 14 of that act, which reads -

Notwithstanding anything contained in, the principal act or this act, there shall be deducted from the assessable income of a taxpayer for the financial year commencing on the 1st day of July, 1923, all sums paid by the taxpayer during the financial year commencing ou the 1st day of July, 1921, in calls on shares in any company- or syndicate prospecting for oil in the Commonwealth

Senator Crawford:

– They have been rather unfortunate up to the present.

Senator DUNCAN:

– That is so, but their efforts may meet with success any time.

Senator Thompson:

– The honorable senator is not suggesting that the coalmining industry is in a parlous condition?

Senator DUNCAN:

– No. The honorable senator knows that I am referring to those persons who pay calls to companies or syndicates which are not making any profits. Those making profits are liable to taxation, and my proposal is not intended to relieve them from taxation. All I wish to do is to relieve taxpayers to the extent of the calls paid, and that is a proposal which I think should receive the support of the Senate. These companies are endeavouring to develop new mines, and open up new coal-mining districts, as is being done in Queensland and other states. The shareholders should be relieved to the extent of being allowed to deduct from their income the amounts paid in calls to such companies. This would assist in developing an industry, which”, I am sure, every honorable senator will admit should be encouraged.

Senator GRANT:
NEW SOUTH WALES · ALP

– It is a very modest request.

Senator DUNCAN:

– lb is. Originally calls paid to coal-mining companies were excluded from the provisions of the act, and, acting upon that provision, men with money were induced to invest capital in new districts, and provide employment believing that calls would be exempt from taxation. The act was subsequently amended to exclude coal mines. It is now proposed to exclude gold and other mines, but what is the value of any promise by this or any other Government if, after persons have been induced to invest money in the gold-mining industry, a Government is able to repudiate a promise made a year or two before ? In spite of what is now being done, it may be possible in a year or two to tax the gold-mining industry almost out of existence. It is the duty of a Government to honour its promises unless there is some clear justification for departing from the obligations into which it entered. The Government was entirely wrong in repudiating its original legislation. We now have the opportunity to give the necessary relief to companies already operating, and to encourage the development of new coal-mining fields.

By doing so we shall be providing employment for thousands of coal-miners, and increasing production, which will have a tendency to reduce the price at which the product is sold to the users. With a view to restoring the coal-mining industry to the position which existed in 1922, I propose in committee to move a new clause to read -

Notwithstanding anything contained in the principal act or this act, there shall be deducted from the assessable income of a taxpayer for the financial year commencing on the first day of July, 1922, all sums paid ‘by the taxpayer during the financial year, commencing on then first day of July, 1921, in calls on shares in any company or syndicate mining or prospecting for coal in the Commonwealth.

The amendment is in almost exactly the same terms as the section which exempts calls paid to oil prospecting and other similar companies or syndicates.

Senator Pearce:

– I thought the honorable senator objected to retrospective legislation.

Senator DUNCAN:

– I do. But I propose, in this instance, to correct an evil for which the Government is responsible. It may be retrospective, but it is to correct a wrongful act of the Government a year or two ago. Retrospective legislation of this character is the only kind I shall support. I wish honorable senators to notice that I do not propose, in this amendment, to exempt coal-mining companies altogether, but merely to do what the government of the day” should have done when the amending act of 1922 was passed. I wish now to read a letter from the chairman of the Sydney Stock Exchange to the Prime Minister (Mr. Bruce), dealing with this very matter, and a copy of which has been handed to me. It reads -

Some of our members, and several of our clients, are very much aggrieved at not being allowed to deduct from their federal income for the year 1st July, 1921, to 30th June, 1922, calls on coal-mining shares actually paid during that year. Acting in all good faith, and with the Commonwealth assurance dating right back to 1915, that they would be able to deduct calls paid on any mining company’s shares, they assisted in the development of one of the natural resources of this Commonwealth, viz.. coal-mining. Act No. 2 of 1901 Interpretation of Acts Act, section 8, clause (c) clearly sets out that no repeal of a former act can affect any right or privilege acquired under any such act, and existing at the time of the repeal. My committee, therefore, considers that the rights and privileges of former acts are certainly preserved until 30th June,. 1922, inclusive. Your Crown Law authorities are endeavouring to make your amendment of Income Act of 18th October, 1922, deprive taxpayers of their rights and privileges, and make this Act No. 37 of1922 retrospective to 1st July, 1921. My committee submits that this would be manifestly unjust, and that upon it being pointed out to you it would be your wish to rectify same, if, by your amendment of act, such rights and privileges have been affected. Leading counsel in this state take the view that your Government cannot legally deprive taxpayers of such rights, and my committee does not for one moment think you had any such intention. Banks, insurance and trading companies are carrying on their business to-day, and adopting policies for the future based on their rights and privileges and obligations under existing acts. Is it conceivable that any Prime Minister or Treasurer would, in sixteen months’ time, endeavour to introduce retrospective legislation that would make what such companies are legally doing to-day illegal? My committee trusts you will givo this matter very serious consideration, and bring in an amendment of Act 37, 1922, so as to make calls on coal-mining shares deductible in the same way as you brought in Act No. 27 of 1923, section 14, making calls on oil shares paid since 1st July, 1921, deductible from federal income.

This puts the matter very clearly, and, in my opinion, advances unanswerable arguments. I have dealt with what appears to me to be the most important amendments required in the bill. In addition to the amendment which I have foreshadowed, there are certain other minor, but essential amendments, required in clause 7, which is to amend section 21, and also in clause 10 which is to amend section 25 of the principal act. I trust the Government will give serious consideration to the protests which have been made by Senator Drake-Brookman and myself with respect to retrospective legislation. If we continued to pass such legislation, our acts will be of very little value, because any undertakings into which we enter, or promises we make, can be repudiated by succeeding Governments. In such circumstances, the confidence of the commercial, manufacturing, and industrial sections of the community would be severely shaken, and it would be impossible for Australia to progress. In committee, I trust I shall have the assistance of honorable senators in rectifying some of the anomalies to which I have drawn attention.

Senator BENNY:
South Australia

– I also wish to protest against the principle of retrospective legislation which Senator Drake-Brockman, Senator Needham, and Senator Duncan have referred to as the most iniquitous form of legislation that can’ be introduced into any legislature.

Senator Pearce:

– Is the honorable senator referring to Senator Duncan’s proposal to go back to 1922 ?

Senator BENNY:

– I am referring more particularly to Senator DrakeBrockman’s suggested amendment to clause 4, and to Senator Needham’s reference to clause 2 of the bill. I object to retrospective legislation of any kind. By introducing such legislation we are endangering the very freedom of the people of Australia, and making a rod for our own backs. The humblest taxpayer will never know when he will be called upon to pay for something which he thought was wiped out, by both the legislature of the country and the Commissioner of Taxation. I also protest against the Government’s action in introducing a bill of such importance at this late stage of the session. Parliament is expected to go into recess at the end of this week, yet we are now asked to deal with an important bill which affects vitally a large section of the community.

SenatorWilson. - The bill was distributed last week.

Senator BENNY:

– I did not get a copy until to-day. In any case, a week is not sufficient time in which to discuss a measure of such importance. Although I feel inclined to vote against the second reading, I shall wait to hear what the Minister has to say. If his explanation is satisfactory, I shall then vote for the second reading; but I intend, in committee, to support the amendment to be moved by Senator Drake-Brockman, and, unless another honorable senator does so, I shall move to have further deductions allowed in certain instances. The Government in this measure is not acting in a humanitarian manner towards the community. It appears to prefer agricultural implements to wives and babies. A deduction is to be granted to any person, no matter what his income, of such sum as the Commissioner thinks just and reasonable, as representing the diminution in value, by wear and tear, of machinery, implements, utensils, rolling-stock, and articles, including beasts of burden and working beasts used to produce income.

Senator Crawford:

-What about a man’s family?

Senator BENNY:

– There is no similar provision for the benefit of families. The deductions in which families are concerned affect incomes under £600 only.

Senator Findley:

– I have an amendment to move on that.

Senator BENNY:

– I shall support it.

Senator GRANT:
NEW SOUTH WALES · ALP

– It would be better to vote against the second reading.

Senator BENNY:

– I am waiting to hear the explanation of the Minister. I object to legislation by which a man who receives a salary of over £600 receives no exemption for his children, but which allows him, no matter whether his income be £500 or £6,000 per annum, an exemption in respect of implements and beasts of burden.

Senator CRAWFORD:
NAT

– Only when used to produce that income.

Senator BENNY:

– Retrospective legislation is against those principles which have “ built up the British Empire, namely, equality between man and man, and freedom from injustice. If the Minister’s explanation is satisfactory, I shall vote for the second reading, but in committee I shall support the amendments to be moved by Senators Drake-Brockman and Findley.

Senator FINDLEY:
Victoria

– I should not have risen had it not been for the remarks of Senator Benny. If it is right that such sum as the Commissioner thinks just and reasonable shall be allowed as a deduction in respect of the dimunition in value caused by wear and tear of machinery and agricultural implements-

Senator Crawford:

– Surely, that is fair?

Senator FINDLEY:

– Yes. But Senator Benny’s reference was treated flippantly. It is too serious a matter to be treated in that manner. Instead of being treated flippantly, it should receive practical support from every honorable senator. In another place an effort was made to get all medical expenses incurred by any person in Australia freed from taxation under this bill. Honorable senators know that when sickness enters a home it is a very serious matter. Our public hospitals are (overcrowded, and the fees charged by private hospitals are not what they were in pre-war days. I do not say that they are unjust, but they are undoubtedly very heavy. We know, also, that the fees charged by doctors have increased, as have also the charges made by chemists. Any person who finds it necessary to pay large sums of money in medical expenses should be allowed a deduction in respect of his income tax, no matter whether his income be large or small. Last season we exempted all homes from taxation. There was no differentiation between the humble ‘ cottage of the poor and the palatial residence of the rich. Nor should” we differentiate when it is a matter of sickness. In another place it was suggested that the exemption should be £800, as in the State of Victoria, but in this bill the exemption is £600. We should treat medical expenses as we treated homes, and exempt them altogether, irrespective of income.

Senator Benny:

– The Government is prepared to exempt agricultural implements, but not the medical expenses incurred on behalf of a man’s wife and children.

Senator FINDLEY:

– I feel that the amendment which I have foreshadowed will receive the support that it deserves. A person whose family is afflicted by illness is a subject more for pity than for taxation, a fact which I hope that the Government will realize.

Senator THOMPSON:
Queensland

– Like previous speakers, I dislike retrospective legislation, but in regard to this measure I shall suspend judgment until I hear the Minister’s explanation. I know that the Government has given long and careful consideration to this bill, and that it has had the benefit of the advice of the taxation officials. I know, also, that there have been evasions of taxation, and that this measure is largely to tighten up the present legislation. I could not follow Senator Duncan with regard to calls in mining companies. If there has been any breach of the act in that respect, the matter should be remedied, even if it means retrospective legislation. Calls are made by companies for the purpose of paying up their share capital and to enable them to carry on. They should, therefore, not be exempted from taxation. If calls are now free from taxation, I consider it is wrong, and that they should be included in the taxable income.

Senator PEARCE:

– They were exempted two years ago.

Senator THOMPSON:

– It was not right to do so. At present we have too many academic deductions. If we had a clear-cut tax on all income derived during the year, and there were fewer deductions and a lower scale of charges, we should not have all the litigation that we have now. There is a good deal of merit in the bill. I consider that the deduction for depreciation is a step in the right direction, which will, no doubt, be appreciated by the people concerned. The clauses dealing with cases of hardship will also provide great relief to people in straitened financial circumstances. The provision for exemptions in connexion with gold-mining is also a right one.

Senator Duncan:

– That does not quite agree with what the honorable senator said just now.

Senator THOMPSON:

– It has nothing to do with the question of calls. I said that calls are capital. I am seeking an addition to the exemption of goldmining, and for other concerns which are not entirely gold-mining.

Senator Elliott:

– Is there any difference between coal and gold-mining companies as far as calls are concerned?

Senator THOMPSON:

– I am not dealing with that question now. I maintain that calls are capital, and should not be exempt from taxation. I appreciate the exemptions provided in this bill for certain gold-mining companies, and in committee I shall endeavour to have the principle extended to include companies mining for gold and copper, so as to embrace certain concerns which are producing a great deal, but which have been running at a loss for some years. I refer particularly to the . Mount Morgan Company, the figures for which I furnished the Senate a few days ago. For four years shareholders in that company have received no dividends. The company is paying away large sums of money in wages, and its operations during the last three years have resulted in a loss of £110,000. Mining’ companies like that, should, I think, be put on the same footing as gold-mining companies in Western Australia.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– I do not propose at this stage to reply to the whole of the criticism that has been directed against the measure, because this, being a committee bill, .1 should have to go over the same ground again in committee. I should, however, like to reply to one or two points that have been raised. One was the so-called retrospective nature of this legislation. Senator Duncan’s proposal would make the bill most definitely retrospective in character.

Senator Duncan:

– It would take it back to 1922.

Senator PEARCE:

– Have honorable senators never voted for retrospective legislation? Have they not voted for an income tax bill? That certainly is retrospective in character.

Senator Duncan:

-. - For the current year.

Senator PEARCE:

– No. An income tax bill deals with income earned by the taxpayer in the year preceding the passage of the measure. Therefore, in its operation it is always retrospective. It may so happen that a man, in one year, may have an income of £1,500, and in the following year have no taxable income at all, yet in the second year he will be called upon to pay income tax on an income of £1,500 earned in the previous year.

Senator Elliott:

– Does the Minister say that this measure does not go further than that?

Senator PEARCE:

– I do. I say that in the true sense of the word this bill is not retrospective. The principal act states definitely that the assessable income of any person shall include -

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: -

Dividends, bonuses, or profits (but not including a reversionary bonus issued on a policy of life assurance) . . .

Then it goes on to state that where a company distributes to its members or shareholders any undistributed income accumulated prior to 1914 the sum so received by the shareholder shall not be included as part of its income. It further provides that 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, shall be liable to taxation, but there is a proviso safeguarding the taxpayer from double taxation. What Par- liament intended, and thought it had done, was to ensure the taxation of certain profits of companies. It was thought that, as it was taxing the citizens of the Commonwealth on income derived from personal exertion or property, it was onlyright ihat it should also tax those persons whose income was derived from the investment of capital in companies. Does any honorable senator suggest that such persons should be exempt?

Senator Drake-Brockman:

– Certainly not from now on.

Senator PEARCE:

– I can imagine what kind of reception they would get from their electors if they endeavoured to justify the exemption from taxation of persons who had their money invested in these concerns. The directors of a company, I remind honorable senators, do not always distribute its profits. They place a certain amount to reserves, and after a time they may decide to “ carve up the melon “ - in other words, to distribute the accumulated profits in the shape of bonus shares, and thus evade taxation. Are two sets of shareholders to be treated differently ? If a company distributes its dividends annually, the profits are included in the income tax returns of taxpayers, who have to pay. taxation upon them. At present, if another company pays its profits to reserves, and subsequently distributes them as bonus shares, its shareholders escape income taxation on those profits.

Senator Drake-Brockman:

– Under this bill, profits accumulated during the last 50 years may be included.

Senator PEARCE:

– That is not so. The principal act, passed in 1914, deliberately excludes all profits undistributed prior to that year. ‘ Parliament, however, intended that profits should be assessable, whether paid as dividends annually or accumulated for several years, and then distributed in the shape of bonus shares.

Senator Findley:

– How much, approximately, would be realized under this bill ?

Senator PEARCE:

– I cannot say, but the amount has no bearing on the point that has been raised. Parliament, when it passed the act. intended that bonus shares should be taxable, and believed that they were liable to taxation. No protest was made against the principle at the time, because it was recognized as just and right.

Senator Drake-Brockman:

– I was in the Senate, and, personally, I did not believe that profits distributed as bonus shares were taxable.

Senator PEARCE:

– The language of the section, which I have read, is perfectly clear.

Senator Drake-Brockman:

– No lawyer in the country can say that it means what the Minister says it means.

Senator PEARCE:

– Ingenious members of the profession, of which the honorable” senator is such a distinguished ornament, have discovered a loop-hole, and they are advising their clients that the act does not do all that Parliament intended it should do. We are now proposing to close up that loop-hole, and to make absolutely sure that the intention of Parliament shall be given effect. I feel quite sure that certain honorable senators are confusing this bill, and the reason for its introduction, with another measure dealing with lessees, whose position in regard to income taxation was the subject of a High Court judgment. The principle in this bill has never been before the High Court. The High Courthas never decided that bonus shares are not liable to taxation, but we have ascertained that, unless the law is amended, as proposed in this bill, certain bonus shares will escape taxation, whilst the holders of other bonus shares will have to pay. Is it not right, in the circumstances, that all holders of bonus shares should be ou an equality ?

Senator Findley:

– How long has this been going on ?

Senator PEARCE:

– It has been ascertained during the last twelve months that if the law is not tightened up certain profits of companies will escape taxation, the method employed being to form what are known as holding companies. Will honorable senators allow taxpayers to escape in this way.

Senator GRANT:
NEW SOUTH WALES · ALP

– Yes.

Senator PEARCE:

– We all know that Senator Grant is opposed to the whole principle of income taxation. The object of the bill is to prevent the intention of Parliament, from being defeated. In committee I shall give information on the point raised by Senator DrakeBrockman. I ask honorable senators to dismiss from their minds any idea they may have that this bill is more retrospective than is any other income tax measure. It is true that it will amend the law this year, and that the amendment will apply to last year’s assessments; but that is not different from theprinciple which underlies other income tax bills. I shall now deal with the matter raised by Senator Duncan. I understand that, at a certain period in the history of our taxation law, a taxpayer was entitled to deduct from his income calls paid in respect of shares held in a coal-mining company. In 1922, when Mr. Bruce was Treasurer, an amending bill was brought down which took away that right. That provision, of course, had a retrospective effect; it was passed in 1922, but it applied to the income that the taxpayer received in 1921.

Senator Duncan:

– Calls were paid on the implied understanding that the law would remain as it then waa.

Senator PEARCE:

– That argument applies with equal force to all income taxation. Suppose that, so far, income taxation had not been imposed by the Commonwealth, but a bill was brought down this year for that purpose. I could

Bay, “Last year, when I had that income, I did this, that, and the other with it. I did not know that you were going to bring down a measure to impose an income tax, and I ought not now to be called upon to pay a tax because I made no provision for it.” That is always the hardship that is experienced when there is a change in the law by which there is taken away some privilege that the taxpayer previously enjoyed, because the tax is assessed upon the income earned in the year prior to that in which the legislation is passed. The other principles of the measure can be dealt with in committee.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clause 1 agreed to.

Clause 2 - (1.) Section two of the principal act is amended by inserting at the end thereof the following proviso : - “ Provided that the acts repealed by this act shall, subject to this act, continue, and be deemed to have at all times continued, in force for all purposes in connexion with income tax payable for any financial year prior to the first day of July, One thousand nine hundred and twenty-two.”. (2.) This section shall be deemed to have commenced upon the date of the commencement of the principal act.

Senator GRANT:
NEW SOUTH WALES · ALP

– This clause has a distinctly retrospective effect. We were assured by the Minister that the measure is not retrospective to any greater extent than is any other income tax legislation. I understand that the tax for 1922 and 1923 has already been paid.

Senator Pearce:

– Some taxpayers have not paid it.

Senator GRANT:
NEW SOUTH WALES · ALP

– If Parliament failed to properly express its intention the taxpayers who refused to pay the tax should not now be called upon to do so. I do not know how many persons are concerned. I should like to see the clause deleted.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– This clause is necessary because the repeal of the Income Tax Assessment Act 1915-1921 took from the Commissioner the powers that he held under that act, and it is impossible for the department to issue an assessment for any of those years. Some taxpayers have, wittingly or unwittingly, escaped payment of taxation for some or all of those years. If in the year 1916-17 a person should have paid income tax, but did not do so, why should he be allowed to escape? By the legislation of that year he was rendered liable to the payment of taxation. Only in that sense is the clause retrospective. I am sure that honorable senators do not desire to give evading taxpayers the power to continue to with1 hold payment.

Senator NEEDHAM:
Western Australia

– I do not say that any taxpayer should have the power to escape from his legal obligation to pay tax. If this clause provides for that alone it is all right. The Minister, in referring to bonus shares, mentioned the practice of “ carving the lemon.” Will the Minister explain the meaning of the words “ income tax “ in the clause ? Have they any reference to the carving of the lemon, or do they relate only to income tax that was legally due in a certain year but was not paid?

Senator Pearce:

– They refer to income tax that was legally due to be paid but was not paid. The full meaning of the clause is that the law which was then in operation shall be deemed to be still in operation for the collection of the tax for those years. In 1922, we passed an act repealing the previous act, but we did not give the Commissioner the power to go back over those years and collect the taxes which had not been paid.

Senator NEEDHAM:

– How far back will he be able to go?

Senator Pearce:

– Back to 1915.

Senator NEEDHAM:

– Has this any relation to bonus shares ?

Senator Pearce:

– It has no connexion whatever with bonus shares.

Senator GRANT:
NEW SOUTH WALES · ALP

– It must be news to honorable senators that some taxpayers have escaped the payment of taxation for nine years. Possibly they have. Even so, I do not think it is a fair deal to go back that length of time.

Senator Gardiner:

– Would the honorable senator allow Sir Sidney Kidman to evade the payment of taxation?

SenatorGRANT.- I should not. I should make Sir Sidney Kidman pay a land value tax; but I would not tax him because he does useful work.

Senator Hoare:

– That is merely camouflage.

Senator GRANT:
NEW SOUTH WALES · ALP

– It is nothing of the kind. We had a vigorous oration from Senator Drake-Brockman in opposition to retrospective legislation. He now has the opportunity to give practical effect to the sentiments that he expressed. I am not prepared to give to the Commissioner the power to go back for nine years to collect income tax. The Government was not greatly concerned about collecting land tax from Sir Sidney Kidman. If it devoted a greater amount of attention to him and similar big land-holders, and less to the poorer taxpayers, the revenue from direct taxation would be largely increased.

Senator GARDINER:
New South Wales

– I have heard several stirring orations regarding retrospective legislation from Senators DrakeBrockman, Benny, and others, but, as those honorable senators did not call for a division on the motion for the second reading of the bill, I at once came to the conclusion that their protests need not be taken seriously. If legislation has been enacted expressing clearly the intention of Parliament, and if certain people afterwards find a loophole in it, I think it is a most excellent idea, not at all savouring of retrospective action, to introduce another bill to restore the position as it was intended to be. It is only common sense to make good any weakness in legislation. That is quite different from passing a bill and calling upon people to pay something which they never anticipated having topay,nd for which they had made no provision. I do not like refraining from voting with Senator Grant against this clause, but I realize that if this clause is struck out there will be difficulty in collecting income tax from people who have evaded their liability to pay the tax. I thought at first that Senator Drake-Brockman had made out a good case, but I changed my mind when I heard Senator Pearce reply, and when Senator Drake-Brockman did not call for a division on the second reading I thought he would go no further. When he was not prepared to put up a fight to reject the bill on the second reading, I thought that he thereby accepted the principle of retrospective legislation, and therefore I am not prepared to support him in putting up a fight in regard to petty details in committee.

Clause agreed to.

Clause3 -

Section fourteen of the principal act is amended -

  1. by inserting after paragraph (l) of sub-section (1.) thereof the following paragraph: - ” (la) the incomederived by a person from the working of a mining property in Aus. tralia principally for the purpose of obtaining gold- - this exemption shall extend to dividends paid by a company out of such income; and “.

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

Senator THOMPSON:
Queensland

.- I move-

That after the word “gold,” in the proposed new paragraphla, the words “or gold and copper” be inserted.

On the second reading I gave my reasons for seeking to amend the bill as I have proposed. The amendment will extend to gold and copper mines now running . at a very heavy loss the advantage which the bill confers upon gold mines.

Senator Elliott:

– Companies which are running at a loss will not be called upon to pay income tax.

Senator THOMPSON:

– But the time may come when those companies may turn the corner and show a profit. When that time comes the amendment will give them some slight opportunity to make good their present losses.

Senator Elliott:

– Would it not be better to exempt their calls?

Senator THOMPSON:

– There are no such things as calls. What the honorable senator refers to as calls is really capital.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– I am sorry that the Government cannot accept the amendment. Senator Thompson probably has in mind the Mount Morgan mine, which is a gold and copper producer. If the mine is making a loss, the amendment will not affect it. The Government’s idea in proposing the amendment in the bill is to try to stimulate the gold-mining industry, which is ab a low ebb. Of course, there are many other worthy industries also in need of stimulation, but if we tried to give every industry exemption from the payment of income tax, heaven only knows where we should end up. Possibly we should end up by having an Income Tax Bill that would produce’ no revenue.

Senator Duncan:

– It is the Government that is making a start in that direction.

Senator PEARCE:

– Yes ; but we think that we cannot afford to go any further than the exemption of gold-mining companies. The Mount Morgan mine was at first a gold mine which incidentally produced copper. I do not know whether it has passed that stage now, and has become a mine which is principally producing copper, and, incidentally, gold. If its principal output is gold, and it makes a profit on its operalions, it will not pay the income tax.

Senator FINDLEY:

– What would be the position of the mine if the output of copper and gold was fifty-fifty?

Senator PEARCE:

– I suppose that the Commissioner of Taxation would give the company the benefit of the. doubt. The amendment iu the bill is an intimation to the Commissioner that the Government does not wish to tax the profits of goldmining companies, even if they may be producing other minerals besides gold.

Senator THOMPSON:
Queensland

– I have not moved this amendment because the Mount Morgan mine is losing money. I realize perfectly well that the company cannot secure relief even under my amendment; but the time may come when it will earn a profit, otherwise the mine will have to be closed down, and thousands of men, women, and children now depending on it will be obliged to seek other avenues for earning a living. What I hope to obtain is some relief for the mine when it resumes the payment of ‘ dividends. It was originally a gold mine, but in the course of years it became a coppergold proposition. In the last five years it has produced £1,578,539 worth of gold, and £2,021,444 worth of copper. It is, therefore, not a fifty-fifty copperproposition, but I consider that it is as much entitled to an exemption as a gold mine may be.

Senator Pearce:

– Nearly all copper mines produce a certain amount of gold. Under - the honorable senator’s amendment a mine that produced 90 per cent, of copper and 10 per cent, of gold would be exempt from paying income tax on its profits.

Senator THOMPSON:

– It is immaterial to me how the amendment is worded so long as an exemption is granted to that most deserving company - the Mount Morgan Gold-mining Company. For four years the shareholders of the company have received nothing out of the mine, and for three years the mine has been worked at a considerable loss.

Sitting suspended from 6.30 to 8 p.m.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– Gold mines and copper mines cannot be considered on the same basis, as during the war the gold producers were not allowed to sell their products in a free market. To use a technical term, the price of gold was “pegged,” as it could not be sold at other than a fixed price. The copper producers, on the other hand, were able to derive full advantage of the higher prices ruling during the war period. The Government cannot, therefore, accept the amendment in its present form. We recognize, however, that there are some mines in the Commonwealth, which, although chiefly producing gold, are also producing large quantities of copper, and which did not derive the full benefit from their output of gold. If the honorable senator will amend his amendment to provide that at least 40 per cent. of the value of the product of such rnines is gold, the Government will accept it. We cannot accept an amendment exempting mines producing gold and copper regardless of the value of the product, as I understand nearly all copper mines produce some gold, and if the output were only 1 per cent. of copper they would benefit.

Senator THOMPSON:
Queensland

– I have taken out the percentage of gold produced from the Mr Morgan mine for the last five years, and I find that for last year it was 48 per cent. , and that in the lowest year it was 42 per cent. In view of these circumstances, I ask leave to withdraw my amendment with the intention of submitting an amended amendment as suggested by the Minister.

Amendment, by leave, withdrawn.

Amendment (by Senator Thompson) proposed -

That after the words “ gold “ in subparagraph la, the words “ or gold and copper provided that in this case the output of gold shall not be less than forty per centum of the total value of the output of the mine.”

Senator FINDLEY:
Victoria

.- Will the Minister explain what is meant by the word “principally” in this subparagraph? As the term, which is somewhat vague, may entail additional work on the part of those entrusted with the administration of the act, perhaps the Minister will explain why it has been used.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

.- The word “principally” to which the honorable senator has referred has the meaning given to it in a dictionary. Nearly every mine produces other minerals which are not its main products. If the amendment moved by Senator Thompson is agreed to it will be clear that mines which produce 40 per cent. of gold are included.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 4 -

Section 16 of the principal act is amended -

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 live stock as at the commencement of the next succeeding period : “ Provided also that any option exercised in pursuance of this sub-paragraph shall be irrevocable.

by omitting from sub-paragraph (i) of paragraph (b) thereof the words “ capital assets “ and inserting in their stead the words “ assets which were not acquired for the purpose of re-sale at a profit “ ;

by omitting sub-paragraph (ii) of paragraph (b) thereof and inserting in its stead the following sub-paragraph : - “ (ii) the paid-up value of shares distributed by a company to its members or shareholders to the extent to which the paid-up value represents the capitalizationof the whole or any part of the profits of the company, derived subsequent to the first day of July, Une thousand nine hundred and fourteen, except profits -

derived by the company during the financial year commencing on the first day of July, One thousand nine hundred and twenty-two, or during an accounting period substituted therefor by (he 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 (or if so required has paid or pays) tax or additional tax under section twenty-one of this act; or

by insertiug in sub-paragraph (iii) of paragraph (b) thereof, after the word “ shall “ (first occuring), the words “, where the shareholder is not a company,”;

Section proposed to be amended -

For the purpose of this act “Value “ means -

In the case of trading stock (not being live stock), the actual cost price of market selling value of each article of trading stock orthe price at which each article of trading stock can be replaced at the option of the taxpayer with respect of each article.”

Senator GRANT:
NEW SOUTH WALES · ALP

– I intend to test the feeling of the committee by moving the deletion of all references to the value of live stock. I do not know whether it is due to the fact that I have had personal experience in mixed farming, or to my inherent opposition to income taxation in any shape or form, or to both, but I strongly object to taxation being imposed upon the value of live stock. I do not know how any one can favour the imposition of this form of taxation upon persons who render such a signal service to the country. After supplying producers with imported wire netting practically free of duty, and exempting payments for wire netting from taxation, we penalize them by imposing a fine in proportion to the service they render to the community in increasing their flocks and herds. In the early pioneering days certain persons chartered a vessel in order to bring stock to Australia, and although everything possible .has been done to preserve and improve the breed of stock, we are taxing those who increase their flocks and herds instead of raising taxation from the proper source. When the Government and their supporters persist in imposing such taxation, I am entitled to point out the error of their ways, and to endeavour to get them to view this question from the same stand-point as I do. If my amendment were accepted the revenue would be reduced by a few million pounds a year; but that would not matter, because, according to the latest figures, we are likely to again have a substantial surplus. I move -

That paragraph (d) be left out.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– The. honorable senator could not accomplish exactly what he desires by his amendment; but if it were carried it would be an indication to the Government that the committee does not favour this form of taxation. Assuming that we tax live stock, there are two ways of doing it. To tax the income derived from the sale of such stock would be a distinct hardship to the taxpayer.

Senator Reid:

– Why?

Senator PEARCE:

– Because he might sell 500 or 600, or even 5,000 or 6,000, head in one year and receive the money in one year. The next year the total amount would be included as income for that year, on which he would have to pay tax.

Senator GRANT:
NEW SOUTH WALES · ALP

– He would be no worse off than any one else.

Senator Benny:

– He would be taxed only on the profit that he had made over and above the amount at which he had assessed that live stock.

Senator PEARCE:

– We are providing for an assessment. This reform was asked for by the stock-owners themselves, and was put in to relieve them from having to pay in the one year a tax on the sales of their live stock. It is obvious that it is in the interests of the taxpayers, because it lightens the burden of taxation. Each year they return the market value of the increase in their flocks and herds. Senator Grant says that we should not tax that income. The biggest incomes in Australia to-day are probably received from men who own large flocks of sheep. Because of the present high price of wool, the pastoral industry is probably our most profitable industry.

Senator Gardiner:

– It may be at the present time.

Senator PEARCE:

– If their income disappears, so does their taxation. To say that that class of income should be exempt altogether is not equitable. Senator Grant says that these people confer a benefit on the community, but so does every one who creates wealth.

Senator GRANT:
NEW SOUTH WALES · ALP

– Then why punish them?

Senator PEARCE:

– Their income is not exempt from taxation.

Senator GRANT:
NEW SOUTH WALES · ALP

– It should be.

Senator PEARCE:

Senator Grant is against all forms of income tax, but the committee is not. If income taxation is fair, as the committee evidently believes it to be, it is only a question of the way in which it shall be levied. The act, as amended by this bill, is distinctly in favour of the stock-owners, and is an equitable means of taxing his income.

Senator BENNY:
South Australia

– I do not propose to support Senator Grant in his desire to eliminate paragraph d, but I ask the Minister whether he has considered the South Australian method of dealing with live stock? Under that system, the stock-owners, in submitting their returns, value their stock at a certain amount, and when they sell them they are taxed on the difference between that assessment and the amount received. That is not only a fair method, but it is a simple one. It is a most difficult matter to deal with live stock and its fluctuating market value from time to time. In South Australia it does not matter whether the value placed on his stock by a stock-owner is a fair one or not. A man may, if he so desires, value his sheep at 10s. each, but if he sells them for 30s. each, the difference is taxable income. That method is much simpler than the method at present obtaining under Commonwealth legislation.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– The South Australian law was fully considered when this measure was drawn up. It is different in its incidence from this measure, but both have practically the same result.

Senator GARDINER:
New South Wales

– I am glad that the committee is dealing with this matter in a way which enables consideration to be given to it. I have a painful recollection of a 30-hour sitting when we discussed this, matter on the Estimates last year. Senator Grant has placed his finger on a grave injustice to the people of Australia. He says that this stock is not ours, but I say that it is, as the community holds many millions of sheep and cattle. I look at this as a tax upon capital, and not upon income. A man’s stock is his capital, and should not be taxed.

Senator Pearce:

– When he sells them, the profit is income.

Senator GARDINER:

– The whole sheep does not become income. When a person sells an engine, he is not charged income tax on the price received, but only on his profits during the year. The case of the primary producer should be dealt with fairly. Under this form of taxation grave injustices are perpetrated. Some time ago, at a place where I was staying, a man lost 50 head of sheep in one night. If a week or two before he had included them in his return, he would pay tax on something from which he received no income. I have read of men who have lost hundreds of cattle in one night because of their eating noxious weeds. Is it fair to tax a man upon cattle that never produce any income?

Senator Pearce:

– A deduction would be allowed for those losses.

Senator GARDINER:

– In the following year, I suppose?

Senator Pearce:

– In the year in which the stock-owner is taxed.

Senator GARDINER:

– If deductions are made because of losses, most stock-owners are unaware of it. Like other honorable senators, I endeavour, when travelling, to make myself acquainted with the views of the people I meet. Frequently, I have discussed this, matter with people in various parts of the Commonwealth, but I have never yet found a stock-owner favorable to this form of taxation, although I have found numbers opposed to it.

Senator Pearce:

– No - one likes taxation.

Senator GARDINER:

– That may be so. I realize that taxation is one of the evils attendant on civilization. It is the price that we pay for our government and protection. Whether we like it or not, we must have taxation; but that taxation should not be unjust. Twelve months ago, in this chamber, I told the story of a man who destroyed all his calves because he would have to pay income tax on them.

Senator Reid:

– At that time there was no market for them.

Senator GARDINER:

– If the Government were to obtain a record for one year of the number of young calves destroyed in Australia, no one would be more surprised than the Minister.

Senator Crawford:

– That is because the milk is worth more than the calves.

Senator GARDINER:

– If Senator Crawford knew as much about dairying as he does about sugar, he would understand that calves get very little milk. After three days the best they receive is skim milk. I realize that on a dairy where from time to time there are considerable numbers of young calves, an enormous amount of work is involved in rearing them. But why should we treat live stock as if it were income, when it is really capital ?

Senator Pearce:

– We do not.

Senator GARDINER:

– I say that we do. If a man had 100 sheep this year, and they increased to 150 by next year, he would have no more income, although he would have something from which he may derive income.

Senator Pearce:

– He is’ taxed only to the extent to which he has disposed of them.

Senator GARDINER:

– How are we to know whether a man who disposes of his stock derives any profit from them ? Take the case of a man who three months ago sold 100 sheep for 30s. each. To-day, if he wants to stock up again, he may, because of the good rains which have fallen, have to pay £3 a head for the same class of sheep. Yet on the sheep that were sold he would have to pay income tax. From one end of Australia to the other there is an outcry against the injustice of taxing the capital of the farmer and the grazier.

Senator Pearce:

– They get a deduction in the case the honorable senator has mentioned.

Senator GARDINER:

– The man has yet to live who can get anything out of the Taxation Department once he has paid his tax.

Senator Reid:

– I got some back last, year.

Senator GARDINER:

– There may be occasions when the case is put so clearly, and the injustice made so apparent, that the department relaxes its usual grasping hand. This tax upon stock is a tax which we would not permit in connexion with any other form of business. Why the primary producers are singled out for this treatment I do not know.

Senator Elliott:

– What does the honorable senator suggest?

Senator GARDINER:

– I suggest, with Senator Grant, that this tax be wiped out altogether, and the stock-owner be taxed upon his profits.

Senator Benny:

– That is the South Australian system.

Senator GARDINER:

– Then it must be good, because if there is any state in which finance is understood it is South Australia.

Senator Elliott:

– Does the honorable senator suggest that Sir Sidney Kidman and others, who probably make £40,000 a year from the sale of stock, should escape taxation ?

Senator GARDINER:

– I do not care how much they make. They will pay income tax on their profits. Those profits will show in their return.

Senator Pearce:

– They make their profits from the sale of their live stock.

Senator GARDINER:

– They make their profits in the same way as do other business men. There is no more difficulty in showing the amount of income derived from live stock than in the case of any other business.

Senator Crawford:

– They have the choice of either method.

Senator GARDINER:

– I should have only one method. I do not believe in that alternative. A man should be taxed on the income earned each year. I see no difference between an owner of live stock and a man whose capital may be represented by goods in a warehouse.

Senator DRAKE-BROCKMAN:
WESTERN AUSTRALIA · NAT

-Brookman. - That is just what I was going to say. The difference between the purchasing price and the selling price of goods in a warehouse or live stock, less overhead charges, is income.

Senator GARDINER:

– I think so too. Stock-owners should, be entitled to make out their own returns, the department,, meanwhile, being watchful to see that it i3 not being defrauded. Why should not the stock of a primary producer be treated as ordinary capital?

Senator Pearce:

– That principle was tried in Queensland and Victoria, and at the urgent request of the graziers themselves, it was abandoned in favour of this system.

Senator GARDINER:

– I do not know that we should legislate to suit the graziers or any one else. I am quite sure that the Minister would not consider the passing of legislation to suit me. I could bring a grave indictment against the department in regard to my own experience. I am allowed to deduct only £100 a year for expenses in connexion with my official position, and I have no appeal. No doubt’ we could greatly multiply such grievances and show that thousands of people are not getting a fair deal. I think, however, that there should be no more difficulty in dealing with live stock than with the ordinary stock of a merchant in a warehouse. The returns should disclose the- real position. I am satisfied that thousands of small live stockowners who never show a profit on their live stock transactions are called upon to pay taxation. As far as values are concerned, we all know how rapidly they change and how sheep worth to-day, say, £1 a head, may within a few months increase to £3. If only we could induce the people to stock up this country and provide fodder as a stand by in times of drought, we should be doing more to increase the wealth of the Commonwealth than by inducing people to start small businesses in competition with others who are well established. Whether or not we have a majority I shall vote for Senator Grant’s amendment. I am quite sure that thousands of people are wondering year after year why this injustice is put upon them.

Senator GRANT:
NEW SOUTH WALES · ALP

– We have just been informed that this provision was included in the act at the request of the stock-owners’ themselves. That may be true, but I have a letter from Mr. M. P. Dunlop, general secretary of the Primary Producers Union, dated the 21st October, 1924, in which he states -

I have to advise that the following resolution was carried at a meeting of my executive on the 25th ult. : - “ That the executive take steps to have the necessity for including the returns of live stock in dairymen’s income tax returns abolished.”

This merely affirms a previous resolution, as my executive has consistently advocated this course for a numberof years. 1 have not the least doubt that the general secretary of the union referred to faithfully represents the views of the Primary Producers Union. Nearly every measure brought in by this Government during the present session has been ostensibly for the assistance of some branch of Australian industry. I remember being called upon recently to vote for a subsidy for the manufacture of sulphur. Other measures brought before the Senate have included bills to provide bounties on the export of dried fruits, on the manufacture of white spirit from grapes, and on the export of meat or live stock to the East. In times of drought we affirm the desirableness of providing cheap railway freights for starving stock. Then when our primary producers get out of their difficulties, and set about increasing the number of their live stock, we employ a huge organization known as the Income Tax Department to devise legal schemes to extract as much as possible from those who work, “ from jackass to jackass.” This business should be stopped. If we pass the bill in its present form we shall never be able to say truthfully that we are anxious to increase the number or quality of live stock in Australia. I disagree entirely with my leader when he says that “ we “ own the cattle, sheep, and other live stock in Australia. It is a misuse of terms to speak of “ our” stock, “ our” wheat, or “ our “ country. As a matter of fact, some of us are only allowed to live by paying rent regularly every Monday morning. My amendment seeks to give some real, tangible, and permanent relief to a very deserving section of the community.

Question - That paragraphd be left out - put. The committee divided.

AYES: 8

NOES: 14

Majority … … 6

AYES

NOES

Question so resolved in the negative.

Amendment negatived.

Senator PEARCE:
Western AustraliaMinister for Home and Territories · NAT

.- I move-

That after the word “ sub-paragraph,” line 14, the words “ for the purposes of an assessment for the financial year beginning on the first day of July, One thousand nine hundred and twenty-four or any subsequent year “ be inserted.

This is really a drafting amendment. It is felt that the clause in its original form would not fully achieve the object desired, namely, to enable live stock-owners to exercise a fresh option under this bill for the income tax assessment for the present financial year, and if they so desire, to have the same option in the assessment for the financial year 1923-4.

Mr Duncan:

– The decision would then be irrevocable.

Amendment agreed to.

Motion (by Senator Pearce) proposed -

That the words “ shall be irrevocable,” line 15, bo left out, with a view to insert in lieu thereof the following words : - “ for the purposes of an assessment for the financial year beginning on the first day of July One thousand nine hundred and twenty-four or any’ subsequent year shall be irrevocable, and shall, if the owner in the notice of his election 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.”

Senator ELLIOTT:
Victoria

– I understand from the previous explanation of the Minister that it is at the option of the stock-owner whether he shall be assessed in the manner provided for by the earlier part of the clause or pay upon his actual receipts. It looks as though, once he has made that decision, he cannot alter it, and there will therefore be very little option left with him in subsequent years.

Senator Pearce:

– He must bring his adult stock to account. He may, at his option, include his natural increase.

Amendment agreed to.

Senator ELLIOTT:
Victoria

– Sub-clause g proposes to omit the words “ capital assets “ and to insert in lieu (hereof the words “ assets which were not acquired for the purpose of resale at a profit “ from sub-paragraph 1 of paragraph b of section 16 of the principal “ jjjh That appears to be open to two objections. The fact that “capital assets “ were excluded show that under the principal act there was no intention to tax anything iri the nature of capital. This provision appears to go considerably further. We have been told that these amendments are proposed with the object of making the act clearer. They will probably result in greater confusion. If the courts were asked to give an opinion, they would hold that it is not an income tax act at all, and the Government would find itself in the same difficulty as it did when it attempted to tax profits arising from the sale of leaseholds.

Senator Pearce:

– This amendment is being made to comply with a judgment of the High Court.

Senator ELLIOTT:

– I do not interpret it in that way. The section of the principal act reads -

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

It is perfectly clear that the Minister is in error when he says that this amendment is being made to comply with the recent judgment of the High Court. Under the principal act a member or shareholder is not liable to tax in regard to capital assets; but under the bill a profit derived from that which is in the nature of a capital asset is in future to be taxed. With a view to putting the matter right, I move -

That the words “ resale at a profit “, in paragraph ((/), be left out, with a view to insert in lieu thereof the words “ trading in such assets.”

If a person traffics in these assets he should be taxed, but if he effects a single sale he should not be taxed.

Senator PEARCE:
Western AustraliaMinister for Home and Territories · NAT

– I think that the words proposed to be inserted have the same meaning as those that are now in the bill. I understand that the courts have held that profits arising from a sale are subject to income tax if the thing sold “ was acquired with the intention of re-selling at a profit. We are merely endeavouring to bring the law into conformity with that judgment of the High Court. The governing factor is the purpose for which the asset was acquired. Surely “ trafficking” means buying and selling?

Senator Elliott:

– Certainly. The distinction I draw is that one person may make a practice of buying and selling, while another may do it only occasionally.

Senator PEARCE:

– Apparently the contention of Senator Elliott is that, if a man buys something costly once a year, and sells it the day after he buys it, even though he bought it with the object of selling it, he should not be taxed; but if, on the other hand, he buys half-a-dozen or a dozen things for the purpose of mak ing a profit, he should be taxed. I cannot see why every such transaction should not be taxed if the purchase is made with the intention of selling at a profit. The number of transactions does not affect the fact that it is trading. I think it is safer to stick to the words at present in the bill.

Senator ELLIOTT:
Victoria

.- I think that if the Minister consults the Commissioner he will find that I, carrying on business as a solicitor, am taxable in regard to any profit that I make from that business; but if I saw a piece of land down the bay which I thought would be suitable for the erection of a weekend residence, and bought it, I would not be trafficking if I re-sold it at a profit in a year or two, even though it had been bought for the purpose of re-selling at some future date.

Senator Reid:

– But the honorable senator would have made a profit on his deal.

Senator ELLIOTT:

– That would be an accretion of capital. It would not be a profit made in the course of my business.

Senator Cox:

– Putting it mildly, would it not be a kind of side line ?

Senator ELLIOTT:

– That is not the case. If one purchases a block of land or a house a deduction from one’s income is not allowed. If that land is sold at a profit, the extra sum realized is not income, but an accretion to capital, and should not be taxed. Those who make a practice of buying and selling land or houses are taxed on the difference between the buying and the selling price. It is then their business from which they derive their income. There is the further point that if it is the intention of this bill to tax transactions of that sort, such action will be constitutionally invalid, because it will be an attempt to tax capital.

Senator PAYNE:
Tasmania

.-‘ I am afraid that Senator Elliott has failed to understand the meaning of this provision. He wandered away from the intention of the clause, and dealt with a supposititious transaction. The object of the clause is to clearly define what assets shall be taxable when the profits from their sale are divided amongst shareholders by way of bonus shares or dividends: The original section provides that profits arising out of the sale of capital assets are not liable to be taxed when they have been distributed in the shape of a dividend or bonus. The clause in the bill is clearer. It gives the Commissioner of Taxation power to collect the tax where assets have been divided after their sale if they have been acquired for the purpose of re-sale at a profit. I think the Commissioner should have that power.

Senator DRAKE-BROCKMAN:
Western Australia

– I hope the committee will agree to the amendment moved by

Senator Elliott. I am sure that it is not the intention of the Government to impose a tax on capital assets or on what may be legitimately described as an accretion of capital assets. If a man makes a habit of buying land and selling it at a profit, and every time he buys land does so with the definite purpose of selling it as early as possible at a profit, whatever he derives as profit in that way may be correctly described as income.

Senator REID:
QUEENSLAND · NAT

– He is a trader in land.

Senator DRAKE-BROCKMAN:

– He is a trafficker in land. He is different from the mortgagee or other man who has land forced upon him through some set of circumstances and hopes to sell it at a profit.

Senator Thompson:

– That may happen fairly frequently to one man.

Senator DRAKE-BROCKMAN:

– I think the Commissioner of Taxation would say that in those circumstances he would not regard the profit so derived as income.

Senator Thompson:

– That is, in my opinion, false reasoning.

Senator DRAKE-BROCKMAN:

– At any rate, I am sure it is the intention of the Government. It is possible, however, under the clause that a man who acquires land or other assets, and hopes in due course to make a profit, may be described as one who has acquired the land or other assets for the purpose of re-sale at a profit. I think the intention could be made clearer by employing the words “ trafficking in such assets.”

The TEMPORARY CHAIRMAN:

– “ Trading “ is the word used in the amendment.

Senator DRAKE-BROCKMAN:

- Jj think “trafficking” would be the better word to use. There is also the constitutional difficulty pointed out by Senator Elliott. It may be held that this is a tax on capital assets, and thus the bill may be declared invalid. In order to attain the end aimed at by the Government, and in order to avoid the possibility of the bill being declared ultra vires for the reasons pointed out by Senator Elliott, I think the committee would be well advised to accept the amendment.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

.- Senator Elliott and Senator Drake-Brockman are losing sight of the provision in section 16. The words in the section are as follow: -

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 membar or shareholder shall not be liable to tax onthat dividend or bonus.

If the paragraph in the bill is agreed to, the proviso will read as follows : -

Provided also that where a dividend or bonus is paid wholly and exclusively out of the profits arising from the sale of assets which were not acquired for the purpose of re-sale at a profit, a member or shareholder shall not bc liable to tax on that dividend or bonus.

If a company acquires assets for the purpose of re-sale, the liability to pay tax will fall upon the shareholders, but if Senator Elliott’s amendment is agreed to, the proviso will read as follows: -

Provided also that where a dividend or bonus is paid wholly and exclusively out of the profits arising from the sale of assets which were not acquired for. the purpose of trading in such assets, a member or shareholder shall not be liable to tax on that dividend or bonus.

A company formed for the purpose of manufacturing textiles may have acquired a large area of land near its mill and suddenly decided to supply its workers’ with dwellings on that land. It could not be said to be trading or trafficking in that land. But where a company acquires land with a view to subdividing it and selling it at a profit, it will be required to pay tax upon the profit it makes. The draftsman has given full consideration to the wording of the amendment provided in the bill, and I must ask the committee not to agree toSenator Elliott’s amendment.

Senator REID:
Queensland

.- I should like to know if tax has to be paid on the profit derived by any individual or company buying land and selling it again at an advanced price?

Senator Pearce:

– The tax is not charged in that way. It is only charged in the case of a company when the profit derived is distributed in the shape of a dividend or bonus.

Senator REID:

– Then evidently the private individual will escape scot free. I should like to know if a company that finds it has more land than it requires, and cuts it up into allotments to sell to its employees, is required to pay tax on any profit it may derive in that way.

Senator Benny:

– It would be if the laud was acquired for the purpose of resale at a profit.

Senator REID:

– Why should there be any difference between a company and an individual?

Senator Pearce:

– In another part of the measure the individual who buys and sells land at a profit is made taxable.

Senator REID:
QUEENSLAND · NAT

– I see no reason why the individual who gets rid of land at a profit should not be taxed.

Senator PEARCE:
WESTERN AUSTRALIA · ALP; NAT from 1917; UAP from 1931

– He is taxed if he buys for resale at a profit.

Senator REID:

– Who is to know when a man has bought land for resale at a profit? What is the difference between an individual who buys shares in a company and sells them at a higher price than he has paid for them, and the man who buys land and sells it at a profit? It is all income from the investment of money.

Senator Drake-Brockman:

– It is simply accretion of capital.

Amendment negatived.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

.- I move-

That before the word “ derived,” paragraph

  1. (3) the words “to an extent not exceeding one-third of the profits “ be inserted.

It has been discovered that sub-paragraph 3 in paragraph h would permit the exemption of companies’ shares which the company may have decided to issue to its shareholders by capitalizing two-thirds of the profits of the year, thus preventing the Commissioner from applying the provisions of section 21 to those profits. The Commissioner could not collect any additional tax from the company, because the company could show it had distributed two-thirds of its profits among the shareholders by way of shares. It will be seen that section 21 could not be applied to such a case. The company’s shares in the hands of the shareholders would be exempt. It is therefore, sought to amend paragraph 3 as I have proposed, and also verbally amend a later part of the paragraph.

Amendment agreed to.

Amendment (by Senator Pearce) agreed to -

That the word “ upon “ be left out with a view to insert in lieu thereof the words “ in respect of “.

Senator GRANT:
NEW SOUTH WALES · ALP

– To test the feeling of the committee, I move -

That in sub-paragraph (3) of paragraph (h) all the words after “ upon “ be left out.

The clause does not appear to be framed with the intention of imposing a tax upon income but upon capital, and I am not sure which of the two forms of taxation is more objectionable. The section in the original act is very complicated, and, with the amendment now proposed by the Minister, it will be exceedingly difficult to understand.

Amendment negatived.

Senator DUNCAN:
New South Wales

– I move-

That the word “ shareholder “ in paragraph i be left out with a view to insert in lieu thereof the word “ taxpayer “.

This clause defines income. The section proposed to be amended reads -

For tho purposes of this paragraph “ value “ means -

  1. interest credited or paid to any depositor or debenture holder of a company :

Provided where the dividends, bonuses, profits or shares referred to in sub-paragraphs (i) or (ii) of this paragraph have been distributed out of profits upon which any company has paid or is liable to pay tax under the provisions of any Income Tax Act which comes’ into operation after the thirtieth day of June One thousand nine hundred and twenty-three the amount of those dividends, bonuses, profits or shares shall be excluded from the assessment of the income of the taxpayer unless the rate of tax payable by him on income from property, if the dividends, bonuses, profits or shares are included, exceeds the rate of tax paid or payable by the company.

Provided further that if the rate of tax exceeds the rate of tax paid or payable by the company, the taxpayer shall be entitled to a rebate in bis assessment of the amount of tax paid by the company on that part of the said dividends, bonuses and profits, and of the face value of the said shares, which is included in his taxable income.

There are trustee companies holding shares on behalf of certain persons, and to that extent are shareholders without being actual taxpayers. They may pay the tax on behalf of the persons for whom they are holding the shares and who are actually the taxpayers. This clause provides that- where the dividends, bonuses, profits, or shares have been distributed, and where the shareholder is not a company, they shall be excluded for income taxation purposes. In cases where trustee companies are holding shares, very often on behalf of widows and others, there is a possibility of an injustice being doneThere can be no objection, so far as I can see, to the word “ shareholder “ being left out, and the word “ taxpayer “ inserted.

Senator Pearce:

– Except that it would defeat the entire purpose of the amendment.

Senator DUNCAN:

– I cannot see how it would. A trustee company may be a shareholder but not a taxpayer, and the actual owner of the shares does not obtain this exemption. The individual on whose behalf trustee companies - such as the Perpetual Trustee Company and other companies - are holding shares should benefit. I do not see why individuals on whose behalf these companies are acting should be penalized because their affairs are in the hands of a company.

Senator PEARCE:
Western AustraliaMinister for Home and Territories · NAT

– This is a subtle amendment, and I have no doubt the honorable senator ha? moved it with the best of intentions, but I am informed by the Commissioner of Taxation’ that it would entirely defeat the object of this portion of the bill. The amendments to paragraphs i and j axe necessary for the effective operation of the amendments proposed in section 21 of the principal act. The paragraph which is being amended relates to the assessment of taxpayers, i.e., company share.holders, in respect of their dividends ; the object being to exclude the dividends if the taxpayer pays at ls. or less, and to give the taxpayer a rebate of ls. in the £1 where his rate exceeds ls. If a company were a shareholder in another company and its income consisted entirely of dividends from that company, it would not be a taxpayer, because its rate of tax would not exceed1s. in the £1. This fact would interfere with the application of section 21 of the act to the shareholders of the holding company in respect of any additional profit which the primary company might have distributed, but which it withheld from distribution. That indicates the clanger of the amendment; and, as I am sure the honorable senator does not wish to defeat theobject the Government have in view, I trust he will not press it.

Amendment negatived.

Clause 4, as amended, agreed to.

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

Senator ELLIOTT:
Victoria

.- This provision apparently gives the Commissioner of Taxation arbitrary powers. Apparently he can determine the consideration for the sale of trading stock. I should like the Minister (Senator Pearce) to explain why such extensive power should be given to the Commissioner.

Senator PEARCE:
Western AustraliaMinister for Home and Territories · NAT

– Some one must be given the power, and in this case it is given to the commissioner. To whom else should we give it ? It should not be left to the taxpayer to determine. There is a safeguard in the principal act under which the taxpayer has a right to appeal to the Appeal Board against the decision of the Commissioner.

Clause agreed to.

Clause 6 agreed to.

Clause 7 (Taxation of companies where distribution not reasonable).

Senator DUNCAN:
New South Wales

. -If we have any desire to protect the interests of taxpayers, we should adopt an amendment which I intend to move. Section 21 of the principal act reads as follows: - (1.) Where in any year a company has not distributed to its members or shareholders at least two-thirds of its taxable income, the Commissioner shall determine whether a sum or a further sum (not exceeding the excess of two-thirds of the taxable income of the company over the amount distributed by it to its members or shareholders) could reasonably have been distributed by the company to them. . . .

That gives the Commissioner power to determine whether a further distribution shall take place or npt, but there is no provision in the clause for notification to the company upon such determination by the Commissioner.

Senator Pearce:

– An appeal is provided for. I understand that the general provisions of the act require the Commissioner to notify the company. If provision to that effect is included in this clause, it will have to be included in other clauses also.

Senator DUNCAN:

– When the determination is made, will the company be notified?

Senator Pearce:

– Yes.

Senator DUNCAN:

– That is satisfactory.

Clause agreed to.

Clause 8 -

Section twenty-three of the principal act is amended - 7. (f) by inserting after paragraph (n) of subsection (1.) thereof the following paragraphs: - “ (o) such part of the assessable income of a taxpayer whose taxable income does not exceed Six hundred pounds”;

Senator FINDLEY:
Victoria

– I move -

Th at the words “whose taxable income does not exceed Six hundred pounds” be left out.

I indicated earlier that I would move in the direction now indicated. When the reasons for this amendment are given, I believe it will be carried by a majority of the committee. No person should be called upon to pay a tax on expenses incurred by reason of sickness in his family. In another place, when an effort was made to accomplish the object that I now seek, the Treasurer said that he would agree to a similar provision to that contained in the Victorian legislation, namely, that such expenses should be deductible where the taxable income did not exceed £800.

Senator Payne:

– If we make it £800, we may as well wipe out the limit altogether.

Senator FINDLEY:

– Notwithstanding the promise of the Treasurer, the amount of taxable income in respect of which the deduction is to be allowed is only £600. No amount should be stipulated. Sickness overtakes all sections of the community, and many persons incur very heavy medical expenses. I do not say that they are unjust, but they are undoubtedly very heavy. By taxing the unfortunate person who is called upon to pay these expenses, as well as those who receive the fees, we are placing a double tax on the community. Last session we exempted from taxation a person’s home, whether small or large. If that was a legitimate exemption, medical expenses have a greater claim to exemption. I appeal to the committee to assist me to carry this amendment, to which I hope the Government will agree.

Senator ELLIOTT:
Victoria

.- I am glad that Senator Findley’ bias moved this amendment. If we are to exempt medical expenses from taxation, that exemption should he general. There is no way by which we can avoid these expenses, which may occur at any time. The case is different from fees paid for admission to amusements, which are in the nature of luxuries. When sickness comes, deep inroads are often made into a man’s income. I can see no reason for limiting the clause to a person whose income does not exceed £600. A man may receive £610, and not be exempt, yet he may be called upon to pay £200 for a single operation. I have pleasure in supporting the amendment.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

– I ask the committee not to accept the amendment as the present concession is already a big one. I inform Senator Findley that the Government in another place moved to make the exemption £800, but it was contested. It was suggested that a person whose income exceeded £600 was well able to pay the tax. If we looked round we could possibly find more deserving cases even than this.

Senator Findley:

– Last year we exempted a millionaire’s home.

Senator PEARCE:

– I think that we were wrong in so doing. Whether rightly or wrongly, Parliament has agreed to the tax being graduated according to the income.

Senator Elliott:

– Not only is the income graduated, but this tax is to be added to the income now most heavily taxed.

Senator PEARCE:

– A man with a taxable income of over £600 would not find this tax a hardship. Only two states - Victoria , and Western Australia - provide for any deduction for medical expenses. Already the Government has agreed to the taxpayers being relieved of taxation to the extent of £2,000,000. If we give way to every consideration of sympathy it will upset our budget calculations. I ask the committee to pass the clause as it stands.

Senator PAYNE:
Tasmania

– I feel disposed to support the amendment moved by Senator Findley. I have been trying to reconcile the restricting of this deduction to those whose incomes do not exceed £600 per annum with the allowance for life assurance premiums to the extent of £50, irrespective of income. That deduction was made because it was recognized that it was wise for a man to make provision for his wife and children in the event of his death. If it is wise to encourage a person to insure his life, it is also wise to encourage him to retain his health and strength so that he may live longer, and thus for a greater period be a taxpayer. From a purely selfish point of view, it is desirable that every encouragement should be given to taxpayers to obtain the best medical attention possible for themselves and family.

Senator Crawford:

– It is proposed also to make a deduction in respect of funeral expenses.

Senator PAYNE:

– I am dealing only with the paragraph which Senator Findley seeks to amend.

Senator Pearce:

– The amendment applies to both paragraphs.

Senator Findley:

– The exemption provided for applies only to funeral expenses not exceeding £20.

Senator PAYNE:

– A man whose taxable income is over £600 is liable to be’ called upon to pay heavier medical fees than a man whose income is much less. The financial position of the patient is taken into consideration by medical practitioners. I know of cases where men with incomes of more than £600 per annum have had such heavy medical expenses that they have really in some years received no income at all. The limitation of £600 does not seem to be justified. If we could ensure to the man whose taxable income is £650 that he would obtain medical attention at the same rate as the man whose income is £300, I should not adopt this attitude ; but I know that medical fees are charged according to a man’s ability to pay. To increase the amount of the taxable income, to which the deduction should apply, beyond £600. would not make much difference to the department. It would afford relief to many deserving .cases. Quite a number rf persons whose taxable income exceeds £600 a year are, through unfortunate circumstances due to illness in the family, in grave financial difficulties, and should have relief.

Senator NEEDHAM:
Western Australia

– I hope the committee will adopt the amendment. The Minister has put up the plea that a man with a taxable income of £600 is in a pretty good position, and should not receive further exemption. I remind the committee that a deduction of £50 is allowable to all taxpayers for each child under the age of sixteen years. Why should not we extend the same relief to all taxpayers, irrespective of income, in connexion with medical and surgical expenses incurred on behalf of their wives, and children under the age of 21 years? Sentor Findley has reminded us that, irrespective of income, a deduction is allowable in respect of a taxpayer’s home. Formerly the Government levied 5 per cent. on its capital value but now every home is free of federal taxation without regard to the taxable income of the owner. There is another profession to which so many people in Australia pay tribute. I refer to dentists. Taxpayers’ should also be allowed to deduct dental fees.

The TEMPORARY CHAIRMAN (Senator Kingsmill:
WESTERN AUSTRALIA

– The honorable senator is not in order at this stage. The question before the Chair is the restriction on the amount of taxable income.

Senator NEEDHAM:

– Very well, Mr. Chairman. I shall speak on this subject later.

Senator BENNY:
South Australia

– I intend to support the amendment submitted by Senator Findley. I am surprised that the Government did not agree to it forthwith. It is extraordinary that deductions should be allowable in respect of agricultural implements, machinery, utensils, and rolling-stock, and not for a man’s wife and children. Under the law as it stands, if a man is the unfortunate possessor of a taxable income exceeding £600 a year, and if through misfortune his medical expenses for any financial year amount to £750, he is not entitled to deduct one penny. If, on the other hand, he is thefortunate owner of a Ford traction engine, and spends money on its repair, he is permitted to make a deduction. Obviously, the Government regards a Ford traction engine as of more value to the community than the wife or children of a taxpayer. It is scandalous that the Government should, in the matter of deductions, place beasts of burden, and rolling-stock, utensils,and machinery, before a taxpayer’s wife and children. Our duty is to support Senator Findley’s amendment, and insist on deductions being allowable in respect of medical expenses for the wives and children of taxpayers. .

Question - That the words proposed to be left out be left out (Senator Findley’s amendment) - put. The committee divided.

AYES: 16

NOES: 6

Majority . . 10

AYES

NOES

Question so resolved in the affirmative.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 9. Special deduction.

Senator GRANT:
NEW SOUTH WALES · ALP

– This clause amends section 24 of the act by increasing the amount of income exempt from income tax from £200 a year to £300. It does not go far enough. It is not generally known that when a taxpayer’s income reaches a certain amount the exemption ceases to be operative. The salaries of the Governor-General and of all the state Governors are exempt from taxation. Many people are of the opinion that members of the Federal Parliament are not called upon to pay the federal income tax. That is a mistake.

Senator DRAKE-BROCKMAN:
WESTERN AUSTRALIA · NAT

-BrockMan. - They should not have to pay state income taxation, and I am doubtful if, under the Constitution, they are obliged to do so.

Senator GRANT:
NEW SOUTH WALES · ALP

– I shall be very glad if Senator Drake-Brockman will endeavour to have repealed the act under which the members of this Parliament placed themselves within the scope of the income taxation of the states.

Senator Drake-Brockman:

– I am sure that it is ultra vires.

Senator GRANT:
NEW SOUTH WALES · ALP

– The fact should be clearly stated that the members of the Federal Parliament are subject to the operation of both federal and state in-

Ci.me tax acts. Unlike some persons who are engaged in business, there is no opportunity for us to escape from the attentions of the Commissioner. He knows exactly what we are getting, and we have to pay accordingly. The federal land tax provides for an exemption of £5,000, whether an estate be worth £50,000 or £500,000. Under the Income Tax Act of New South Wales every taxpayer has an exemption of £250 no matter what his income may be. It is a popular, but erroneous opinion, that the federal exemption of £200 applies to all incomes. Section 24 of the principal act, however, clearly lays it down that such is not the case. It provides -

Iti the case of a person, other than a company or an absentee, there shall be deducted, in addition to the sums set forth in the last preceding section, the sum of two hundred pounds, less one pound for every’ three pounds by which the income exceeds two hundred pounds.

Therefore, any person whose income exceeds £200 does not receive the full exemption, because at that point it immediately commences to vanish. A simple calculation shows that when the income of the victim reaches a certain amount he or she does not get the benefit of any exemption. In my opinion every taxpayer should be allowed an exemption of £300. There does riot appear to me to be any tangible reason for its gradual extinction. I know that it is a part of the general propaganda that was foisted upon Australia by Knibbs and Company, under the Income Tax Assessment Act, with its multiplicity of curves and other eccentricities. i It ought to be abandoned so that the taxpayers would know exactly what they had to pay. The majority of honorable senators, if asked to do so, could not figure out what the tax should be upon a specified income. That ought not to be the case. I do not offer any objection to the raising of the exemption from £200 to £300, but I wish to see whether the omission of the provision which enables the Commissioner to apply the vanishing principle is favoured by the committee. I therefore move -

That all the words after the word “ two “ be left out.

Amendment negatived.

Senator GRANT:
NEW SOUTH WALES · ALP

– The clause now provides that the exemption shall be £300, but that it shall begin to vanish when the income exceeds that amount. I move -

That the following words be added to the clause : - “ and by omitting therefrom all the words after the word ‘ pounds ‘ first occurring.”

If the amendment is agreed to, every taxpayer will have a certain exemption of £300. I do not know of any state that has adopted the principle of a vanishing exemption.

Senator JOHN D MILLEN:
TASMANIA · NAT; UAP from 1931

– I am in favour of the amendment. We cannot get away from the fact that the majority of the people of Australia are looking for a considerable reduction in their income tax.

Senator Pearce:

– This would relieve from taxation income amounting to £9,000,000, and would result in a loss of revenue from that source of £1,000,000 annually.

Senator JOHN D MILLEN:
TASMANIA · NAT; UAP from 1931

– The taxes in every state are ‘ particularly heavy, and there is no doubt that their severity places a very serious load upon the people of Australia. In the last act passed in the United States of America, which country also disclosed a considerable surplus in its budget, there was a provision for reduced income taxation, by making the exemption of $2,500 apply to every income.

Senator Pearce:

– The United States of America had only two years of war, whilst we had four.

Senator JOHN D MILLEN:
TASMANIA · NAT; UAP from 1931

– They effected very material reductions, in addition to that to which I have referred.

Senator Pearce:

– And made money out of the war. It is no wonder they can afford to do so.

Senator JOHN D MILLEN:
TASMANIA · NAT; UAP from 1931

– Whether America made money out of the war or not is beside the question, but it has set us an example. It has scaled - down the surtaxes, and made a material reduction in the income tax. Everywhere one goes in Australia he hears the demand for a reduction in taxation, and without further words I shall support Senator Grant’s amendment.

Senator PEARCE:
Western Australia Minister for Home and Territories · NAT

– I do not think that Senator Millen realizes what he is committing himself to. At a rough estimate Senator Grant’s amendment would remove £9,000,000 from the field of taxation, causing a loss of £1,000,000 to the revenue. That cannot be done in such a slapdash way. Already taxation to the amount of £2,000,000 is being remitted by this bill.

Amendment negatived.

Clause agreed to.

Clause 10 -

Section twenty-five of the principal act is amended by inserting at the end of the proviso to paragraph (i) thereof the words, “ This proviso shall not apply to any lease from the Commonwealth or a State being a perpetual lease without revaluation or a lease with a right of purchase “.

Section proposed to be amended -

A deduction shall not in any case be made in respect of any of the following matters : -

Provided that where it is proved to the satisfaction of the Commissioner that amy taxpayer (being the lessee under a lease or the assignee or transferee of a lease) has paid any fine, premium or foregift, or considerationin the nature of a fine, premium or foregift for a lease, or a renewal of a lease, or an amount for the assignment or transfer of a lease of premises or machinery used for the production of income, the Commissioner may allow as a deduction, for the purpose of arriving at the income, the amount obtained by dividing the sum so paid by the number of years of the unexpired period of the lease at the date the amount was so paid, but so that the aggregate of the deductions so allowed shall not exceed the sum so paid if paid on or after the thirtieth day of June, One thousand nine hundred and fourteen, or the part of the sum so paid which is proportionate to the unexpired period of the lea.se from the thirtieth day of June, One thousand nine hundred and fourteen if the sum were paid prior to that date.

Senator DRAKE-BROCKMAN:
Western Australia

– This clause is a little difficult to understand.If it refers, as I believe it does, to leases from the Commonwealth or a state, I suggest the insertion of the words “from the Commonwealth or state” after the word “ lease “, second occurring.

Senator Pearce:

– I have no objection.

Amendment (by Senator DrakeBrockman) agreed to -

That after the word “ lease “, second occurring, the words “from the Commonwealth or a state “ be inserted.

Senator Elliott:

– I should like the Minister to explain the clause.

Senator PEARCE:
Western Australia Minister for Home and Territories · NAT

– The clause is necessary because of a proposal in another bill which provides for the taxation of the proceeds, derived from the sale of leases. It is necessary to exempt from that taxation the proceeds of the sale of the leases described in this clause.

Clause, as amended, agreed to.

Clause 11 agreed to.

Senator PAYNE:
Tasmania

– I move -

That the following new clause be inserted : - “11a. After section thirty-seven of the Principal Aet the following section is inserted: - (37a.) A person whose assessment is reduced so that he becomes entitled to a refund of any amount paid by him in excess of the amount of tax properly payable by him, shall be entitled to receive, in addition to the amount of the refund, interest at the rate of Six pounds per centum per annum on the amount of the refund calculated from the date when the person paid the amount to be refunded until the date whenthe refund is made to him.’ “

Cases have occurred in which the taxpayer has been compelled to pay the amount of tax demanded from him before he could appeal against . his assessment. When the appeal has eventually been heard, and it has been proved that his assessment was too high, a refund of a portion of the amount paid by him has been ordered ; but in many cases this refund is made a considerable time after the demand of the department for the payment of the tax has been met. It seems to me only reasonable that when a taxpayer’s money which has been held for any length of time is returned to him, it should be accompanied by a certain amount of interest. The Royal Commission on Taxation in its third report, dated 1922, recommended as follows : -

If such amended assessment discloses that an overcharge was demanded in the original assessment, in our opinion the taxpayers should receive interest at a prescribed rate.

The Taxes Management Act of Great Britain, 1880, makes provision that in the event of the amount of the assessment being altered by an order or judgment of the court, the difference in amount, if too much has been paid, is returned to the taxpayer with such interest as the court may allow. Backed up by the opinion of the royal commission and a provision in a British act, I think I am justified in submitting this new clause. It is only a fair request that when a taxpayer’s money is held by the department for any considerable time the department should pay a reasonable rate of interest on it.

Senator PEARCE:
Minister for Home and Territories · Western Australia · NAT

Senator Payne is correct in saying that the royal commission had made a similar proposal to his, but the Government, having considered the matter, decided not to accept the recommendation for the following reasons: - fi). The Parliament has authorized the Commissioner of Taxation to permit taxpayers to delay payment of tax if the circumstances reasonably justify, that course. The Commissioner does not charge interest on the outstanding tax or make the payment of interest a condition of the extension of time to pay. (2). The law imposes a penalty on any taxpayer who underpays tax through the omission of income from his return, but authorizes the Commissioner to waive the penalty, wholly or in part, if he thinks the circumstances warrant that course.

The Commissioner does not impose the penalty in any case in which the taxpayer brings under the notice of the department the omission of income, and in many other cases the Commissioner waives the penalty if the taxpayer gives a reasonable explanation.

Senator Payne’s amendment makes no similar distinction, but would require payment of interest on all refunds, even though the overpayment may have been due to an incorrect return lodged by the taxpayer, as is the case in the great majority of instances. Even if. refunds may arise from judgments of the court, interest is not more properly payable by the department than would be the case if the department sought to charge a penalty on taxpayers who may have underpaid because of a judgment of the court showing that more tax could have been demanded. There is one such judgment now operating in that way in connexion with the War-time Profits Tax. In the early days of federation, when it was assumed that federal legislators were taxable in the state in which they resided, I made an overpayment of income tax to the State Government of

Victoria, but it was my own fault. If Senator Payne’s amendment had been the Victorian law at the time, I would have been paid interest on an overpayment for which I was solely responsible. I ask the committee not to accept the amendment. The taxpayer is not charged interest, and I do not think it is fair that in the case of a refund the Government should be put in a worse position than the taxpayer who has been found by the court to have underpaid his tax.

Senator H HAYS:
Tasmania

– A taxpayer has to pay the amount demanded before he can lodge an appeal, which through no fault of his own may be held over for twelve months, or even longer. He has to’ wait the convenience of the authorities before his appeal can be heard, and when a decision is given in his favour it seems only reasonable that interest should be paid on the excess amount which he has paid. If a taxpayer sends in a late return, he has to pay a heavy penalty.

Senator PEARCE:

– He may appeal.

Senator H HAYS:

– How many taxpayers go to that trouble? Many who are paying taxation in excess of the amount they should pay do not appeal. The Commissioner is only carrying out the act.

Senator PEARCE:

– It may not be the fault of the Commissioner: The delay may be due to the Appeal Board.

Senator H HAYS:

– At any rate, it is not the fault of the taxpayer, and when the Appeal Board decides that a taxpayer has contributed more than is necessary, interest should be paid on the excess amount held by the department.

Senator ELLIOTT:
Victoria

– In cases such as those mentioned, the Commissioner should place the money to a suspense account in the savings bank, so that interest might be paid.

Senator PEARCE:

– The Commissioner would receive 3 per cent, from the savings bank, and would have to pay the taxpayer 6 per cent.

Senator ELLIOTT:

– The taxpayer should be paid the interest received by the department from the savings bank.

Senator PAYNE:
Tasmania

– A person from whom a large sum is demanded by the department derives very little satisfaction in knowing that as. an offset against the amount he has been temporarily overcharged, taxpayers who have not paid their taxes have been penalized. I have before me particulars of an appeal in which £2,0291s. 6d. more than could legitimately be demanded was held by the department for a considerable period, and, although, this amount was not available to the appellant until a decision was given in hie favour, no interest waspaid. There may be many similar cases, although the amounts involved may not have been so large, but it is not fair to take sums in excess of the legitimate tax, and then decline to pay interest. I inadvertently omitted to state that theRoy al Commission on Taxation recommended, in addition to what I have already quoted, that interest should be added to overdue payments, and if the Government will submit an amendment in that direction, I shall support it. I trust the committee will agree to my amendment.

Senator THOMPSON:
Queensland

– I sympathize with Senator Payne because I, too, know of cases in which the department has held fairly large sums for over two years. I think, however, the honorable senator should be satisfied in protesting, which may have the effect of expediting departmental procedure. To pay interest in these cases would be to establish a precedent in departments such as the Department of Trade and Customs, which, I think, would be dangerous.

Senator Payne:

– It is done in Great Britain.

Senator Pearce:

– Only on the order of the court.

Senator THOMPSON:

– Deposits in respect of duty paid to the Customs Department are held for a considerable time, and if interest were paid on moneys held by the Taxation Department, similar claims would be made by others whose money was held by other departments.

Question - That the new clause be inserted (Senator Payne’s amendment) - put. The committee divided.

AYES: 7

NOES: 17

Ma jority . . 10

AYES

NOES

Question so resolved in the negative.

Proposed new clause negatived.

Clauses 12 to 14 agreed to.

Senator PEARCE:
Western AustraliaMinister for Home and Territories · NAT

.- I move-

That the following new clause be inserted : - “ 14a. After section ninety-three of the principal act, the following section is inserted : - 93a. Where under any contract agree ment or arrangement made or entered into in writing or verbally, either before or after the commencement of this act, a person assigns, conveys, transfers or disposes of an income-producing asset on terms and conditions which include the payment for the assignment, conveyance, transfer or disposal of the asset by periodical payments which, in the opinion of the Commissioner, are really in the nature of income of the person assigning, conveying, transferring or disposing of the asset, that, person shall be assessed to pay income tax upon those periodical payments.’”

The practice is rapidly spreading of producing assets being sold to companies incorporated expressly for the purpose of takingover assets. The selling price of the assets is fixed by the vendor at an extraordinarily high figure. In one or two cases which have come under notice the selling price in each instance has been fixed at slightly less than £500,000. The terms of payment to the vendor are extended and obviously fixed so that he will continue to receive, in the form of instalments of purchase money, at least the same amount that he would have received as income had he retained the source of income to himself. That is an ingenious method of defeating income tax. The law would treat that as a sale of an estate, whereas it is nothing of the kind. It is passing the estate on to a company which guarantees to the man proceeds equal to his present income from it. To defeat this attempt to evade the act it has been found necessary to introduce this new clause.

Senator Findley:

– Will the words “ on or before the passing of this act “ apply to any particular period ?

Senator PEARCE:

– It would go back to the last assessing period, and would apply to any transaction during the year for which the man is assessed.

Proposed new clause agreed to.

Clause 15 agreed to.

Clause 16 (Application and commencement of act).

Senator DRAKE-BROCKMAN:
Western Australia

– I move -

That the following new sub-clause be inserted : -

Paragraph h of section 4 of this act shall not apply to the paid-up value of shares distributed prior to the commencement of this act.

In my second-reading speech’ I explained why this amendment should be accepted. Senator Pearce has since answered at some length the arguments I then put forward, but I do not think that he has placed before the committee much that necessitates any comment at my hands. I merely reiterate that I, personally, am against all retrospective legislation on principle. I am opposed to this retrospective legislation for the same reason. There are one or two aspects of the matter to which I desire to refer. If these profits which it is now proposed to tax had been distributed on the 30th June, 1922, they would escape taxation under this clause, but if they had been distributed on the 1st July, 1.922, they would be taxable. If the law said that on the 30th June, 1922, these profits were not taxable, and, in accordance with the law, they were distributed, they should not now be subject to taxation because they were distributed one day later. Ifthey were distributed yesterday, and the law then allowed them to be distributed free from taxation, we should not say to-day that what was rightly done yesterday was wrong. The principle is perfectly clear, and I distinguish between it and the ordinary retrospective effect of income tax legislation, because by this bill we are creating a new source of income taxation. Something which never before has been income we now say shall be income. We are perfectly justified in saying that from to-day it shall be income, but we are not justified in saying that past payments in this regard shall be regarded as income for the purpose of taxation.

Senator PEARCE:
Minister for Home and Territories’ · Western Australia · NAT

– All income tax is, from its very nature, actually retrospective in that when the taxation is imposed it is collected in one year on the income of the previous year. If Senator DrakeBrockman’s amendment is accepted we shall say that in all other classes of income a person shall pay income tax this year on the income he derived last year, but that in regard to this particular form of income that will not be the case.

Senator Drake-Brockman:

– This is new income.

Senator PEARCE:

– We create new in-

Gome in every income tax act. If the amendment is agreed to there will be no taxation of last year’s income in respect of this particular class of income. Not until the assessments for 1924-5 could this class of taxation be levied. If that were the case, it would enable shareholders in a company, either private or public, to escape income tax on any bonus shares issued to them at any time out of profits derived by the company during the finanoial year 1922-3. It is to be noted that the company would be assessed on those profits in the year 1923-4, and it would be liable to pay income tax at1s. in the £1 on those profits. The shareholders would, of course, receive a. rebate of1s. in the £1 on any cash dividends received by them from the company, when their individual rates of tax exceed1s. in the £1. But it must be remembered that section 21 of the act might be found to be applicable to the company, because it might not have distributed a reasonable proportion of its profits, and because its actual cash dividends may not amount to two-thirds of the profits. The Commissioner would then proceed to apply section 21 of the act to the company, with’ the object of securing payment from it of the additional tax which the shareholders would have paid, ifa further distribution had been made as determined by the Commissioner under section 21. The company might then argue that it proposed to make an additional distribution by way of bonus shares, and if the proposed amendment in the paragraph were made, it would then contend that, as those bonus shares would be exempt the Commissioner should not claim payment by the company of any additional tax under section 21. It was because of this position being a probability, that the Government inserted, sub-paragraph 3 in paragraphh of clause 4. An examination of subparagraph 3 will show that the shareholders of the company are to be entitled to escape tax on bonus shares which are distributed to them out of onethird of the company’s profits, upon which thecompany will have paid tax at1s. in the £1, and which are not to be subject to any additional tax in the hands of the company through the operation of section 21. This sub-paragraph necessarily mentions the year in which the income is derived by the company, whereas sub-paragraph 2 refers to an assessment year, that is the year in which the company pays the tax. The proposed amendment to sub-paragraph 2 would not be fair to the revenue or to other taxpayers generally. It cannot, therefore, be accepted by the Government.

Senator ELLIOTT:
Victoria

– I had. hoped that theMinister would accept this amendment, as unless some such amendment is made, considerable difficulty will be experienced. It often happens that shares are the subject of settlements whereby the income arising from the shares is given to one set of persons and the corpus to another set of persons. It has been held by the courts that when bonus shares are issued they become part of the corpus. In cases like that, what will happen if trustees are compelled to pay income tax on those shares? It will be possible in the future for trustees to make arrangements to meet such cases, but where the distribution has been made, and have become part of the capital, who will be assessed for that income?

Senator Pearce:

– The beneficiaries.

Senator ELLIOTT:

– Who are the beneficiaries ? There are two sets of persons, those who get the annual income, and those who receive the corpus.

Senator Pearce:

– Those who get the income will be assessed.

Senator ELLIOTT:

– Where will the money come from ? Unless the amendment is agreed to there will be considerable difficulty and a great deal of litigation before the unfortunate people who trusted in the law as itthen stood will get out of the wood. I hope that the Minister will see his way to accept the amendment.

Question- - That the sub-clause proposedtobe added be so added (Senator

Drake-Brockman’s amendment) - put.

The committee divided.

AYES: 10

NOES: 14

Majority … … 4

AYES

NOES

Question so resolved in the negative.

Amendment negatived.

Clause agreed to.

Senator DUNCAN:
New South Wales

– I move -

That the following new clause be inserted : - “ 17. Notwithstanding anything contained in the principal act, there shall be deducted from the assessable income of a taxpayer for the financial year commencing on the first day of July, 1922, all sums paid by the taxpayer during the financial year commencing on the first day of July, 1921, in calls on shares in any company or syndicate, mining or prospecting for coal in the Commonwealth.”

Senator Pearce:

– I rise to a point of order. I submit that the honorable senator is not in order, because bis amendment does not amend any section of the principal act. The honorable senator has missed his opportunity. An amendment to an amending bill of this kind must either be to insert a new clause, following some clause of the bill dealing with a specific subject, or it must amend some section of the principal act.

Senator Duncan:

– My amendment is for the insertion of a new clause. I take it that in a comprehensive amending bill of this nature an honorable senator is entitled to givenotice of any other amendment, including one for the insertion of a new clause.

Senator Pearce:

– But it must amend the principal act.

Senator Duncan:

– My amendment does that. The principal act was amended by section 14 of the act of 1923. The Government’s amendment on that occasion waa in. exactly the same words that I am now suggesting for this new clause. It related to oil shares and calls. My amendment extends that exemption to calls paid upon coal shares.

The TEMPORARY CHAIRMAN (Senator Kingsmill:

– The point of order raised by the Leader of the Senate cannot be sustained. The bill may be amended by additions., aa well as alterations to the principal act.

Senator DUNCAN:

– I was about to point out, when the Leader of the Senate intervened with his point of order., that in my second-reading speech I advanced what I believed to lie a strong argument in favour of the proposal which I am now submitting. We amended the principal act at the instigation of the Government in 1928 by exempting from taxation calls paid on oil shares. ‘ The Minister, in reply, made a good deal of the fact that whilst I had condemned retrospective legislation, my own proposal, now before (he committee, was exactly in the same category.

Senator Drake-Brockman:

– In other words, the honorable senator makes a distinction between retrospective legislation which imposes a disability upon the taxpayer and retrospective legislation which gives relief.

Senator DUNCAN:

– That is the point I wanted to. make. My amendment will not affect the big mines, because they are dividend-paying propositions, and come under the ordinary provisions of income tax law. It will apply more particularly to mines in other states than New South Wales, where, generally speaking, such concerns are well developed and are working efficiently. In the other states, however, serious difficulties are being encountered in the early stages of mining development, and as it is not likely that many of the ventures Will be showing a profit for some time to come, the capital required for their development is being obtained in calls. The money passes from the control of the men who own it, and is being used for the payment of wages to coal miners employed in the development of what may be, for some time, unprofitable ventures.

Senator J B HAYES:
TASMANIA · NAT; UAP from 1931; LP from 1944

– The bulk of the share capital may be represented by calls.

Senator Drake-Brockman:

– ^ Nearly always three-quarters of it.

Senator DUNCAN:

– Most of this newcapital is used for the payment of wages. In my own state thousands of coal miners are being employed in mines which are being carried on by means of this new capital in the hope, eventually, of returning dividends to the shareholders.

Senator Pearce:

– The honorable senator’s amendment will not exempt those calls from taxation.

Senator DUNCAN:

– Yes. It provides for deductions in respect of all sums paid in calls.

Senator Pearce:

– Only in one financial year.

Senator DUNCAN:

– I pointed out in my second-reading speech that many persons were induced to invest in mining ventures by reason of the fact that, under the original act, coal-mining shares were exempt, and that a definite promise was given that this exemption would ‘be continued. This amending bill repudiates that undertaking, and as a result those investors have not had a definite warning, and have had no opportunity whatever to get rid of their investments if they wished to, or to refrain from putting in additional capital. My object is to give to them that due notice which, should have been given, by the Government when it brought down this amending legislation. The amendment provides merely that those who made investments on the definite undertaking that calls would be exempt shall be placed in as good a position as they would have occupied had warning been given to them that the exemption was to be withdrawn. I think it is a perfectly reasonable proposition. It will be in the interests of the small men in the industry. The action of the Government had the effect of closing down a number of mines, and if it is now reversed other mines will be opened, greater employment will be provided, the production of coal will be larger, and possibly the price of coal to other industries will be lowered.

Senator PEARCE:
Western AustraliaMinister for Home and Territories · NAT

– Either the honorable senator is unintentionally misleading the committee, or he has not read his amendment. This does not propose to assist the struggling miner. It provides that the exemption shall apply for only one year.

Senator Duncan:

– It can be made to. apply to succeeding years.

Senator PEARCE:

– All this talk about assisting the struggling miner, to enable him to prospect for coal, is beside the question. It is intended to meet the case of some persons who were assessed in respect of income earned in the year prior to that in which the act came into force. That is always the case with income tax legislation. Three years later we are asked to go back, and for that particular year make an exception in the case of these persons. Why should we? If it is right to except that year, it is right to except every year. This is retrospective legislation of the worst kind, and I ask the committee not to agree to it.

Senator ELLIOTT:
Victoria

– There is nothing new in this proposal. Section 23 of the principal act mentions the deductions that are allowable, one of which is -

So much of the assessable income as is paid incalls on shares in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, or rare minerals.

Why was coal-mining not included ? Its value is as great, in the direction of providing employment and aiding our other industries, as is mining for oil or rare minerals. If Senator Duncan will make the principle of general application, I cannot see why the Ministry should oppose it. I shall have great pleasure in supporting it. Recently, one of the few coal mines, that we have in Victoria was closed down, after £12,000 had been paid in calls. If some slight encouragement had been given in the way of a remission of income tax, that mine might have carried on for a year or two longer, and provided employment for many miners.

Senator DUNCAN:
New South “Wales

– I ask leave to amend my amendment to provide that the deduction shall apply “ from the financial year commencing on the 1st day of July, 1922, onwards.” That will make the exemption apply to the year 1921, and to succeeding years.

Proposed new clause, by leave, amended Accordingly.

Question - That the proposed new clause as amended be inserted (Senator

Duncan’s amendment) put. The committee divided.

AYES: 5

NOES: 17

Majority . . . . 12

AYES

NOES

Question so resolved in the negative.

Proposed new clause negatived.

Title agreed to.

Bill reported with amendments.

Standing and Sessional Orders suspended ; report adopted.

Bill read a third time.

Senate adjourned at 11.29 p.m.

Cite as: Australia, Senate, Debates, 8 October 1924, viewed 22 October 2017, <http://historichansard.net/senate/1924/19241008_senate_9_109/>.