Senate
19 September 1928

10th Parliament · 1st Session

  1. Senate
  2. 10th Parliament
  3. 1928

The President (Senator the Hon. Sir John Newlands) took the chair at 3 p.m., and read prayers.

page 6836

QUESTION

PAN-PACIFIC CONFERENCE

Senator LYNCH:
WESTERN AUSTRALIA

– I ask the Leader of the Senate whether it has come to the knowledge of the Government that, according to reports that have appeared in the press, a recent conference of PanPacific trade unions in Shanghai arrived at a decision hostile to the White Australia policy ; and also is the Government aware that as the Sydney Trades and Labour Council is affiliated with the PanPacific Conference, it is bound by the decision of that gathering? In view of these facts I ask if the Goverment does not deem it advisable to call on the Sydney Trades and Labour Council to repudiate this reported interference with our internal policy or else cancel its affiliation?

Senator Sir GEORGE PEARCE:

– I noticed the resolution to which the honorable senator refers and I remind him that the affiliation with the Pan-Pacific Conference is of a much more extensive character than is indicated by him. It is the body known as the Australian Council of Trades Unions that is affiliated with the Pan-Pacific Conference. This body, I understand, represents organizations other than the Sydney Trades and Labour Council: The Government learning that it was proposed to convene a Pan-Pacific conference in Australia, and recognizing the ideals behind this body, refused permission for the conference to be held in this country.

page 6836

ASSENT TO BILLS

Assent to the followingbills reported : -

Appropriation (Works and Buildings) Bill

1928-29.

Invalid and Old-age Pensions Bill.

page 6836

PAPERS

The following papers were presented : -

Renunciation of War - Further Documents relating to the Proposed Treaty.

Australian Imperial Force Canteens Funds Act - Eighth Annual Report,1st July. 1927, to 30th June, 1928.

Commonwealth Bank Act - Regulations amended - Statutory Rules 1928, No. 94.

Seat of Government Acceptance Act and Seat of Government (Administration) Act - Ordinance No. 19 of 1928 - Church of England Property Trust.

Arbitration (Public Service) Act - Determinations by the Arbitrator -

No. 25 of 1928- Fourth Division Postmasters, Postal Clerks and Telegraphists’ Union.

No. 26 of 1928 - Fourth Division Postmasters, Postal Clerks and Telegraphists’ Union.

No. 27 of 1928 - Amalgamated Postal Workers’ Union of Australia.

No. 28 of 1928 - Commonwealth Public Service Clerical Association.

No. 20 of 1928 - Commonwealth Storemen and Packers’ Union and Commonwealth Naval Storehousemen’s Association.

No. 30 of 1928 - Federated Public Service Assistants’ Association.

No. 31 of 1928 - Fourth Division Officers’ Association of the Trade and Customs Department.

No. 32 of 1928 - Commonwealth Temporary Clerks’ Association.

Invalid and Old-age Pensions Act - Statement re Pensions for the Twelve Months ended 30th June, 1928.

Loan Money - Particulars of Expenditure in each State for year 1927-28 and provision for year 1928-29, on Erection of New Buildings and Extension of Telegraphic and Telephonic Services.

Lands Acquisition Act - Land acquired at Cook, South Australia - For Defence purposes.

Railways Act - By-law No. 48.

War Service Homes Act - Land acquired in New South Wales at - Albury; Glen Innes.

Seat of Government Acceptance Act and Seat of Government (Administration) Act - Ordinance No. 20 of 1928 - Education.

page 6836

QUESTION

WHEAT BOUNTY

Senator LYNCH:

– I ask the Leader of the Senate whether, in view of the fact that the world’s price for wheat has fallen 1s. a bushel within the last month or two, and since the Government has agreed to give an export bounty of1s. a ton to the coal-mining industry in New South Wales, in which industry numerous strikes have occurred over a ‘ number of years, the Ministry will now come forward with a proposal to grant an export bounty of1s. a bushel to the wheat industry which has always supported the protective policy of the country more than any other industry and never goes on strike ?

Senator Sir GEORGE PEARCE:

– The honorable senator is well aware that it is not the practice to make statements of Government policy in reply to questions; but in view of the facts mentioned by him I shall bring his suggestion under the notice of the Prime Minister.

page 6837

JERVIS BAY INCIDENT

Senator Sir GEORGE PEARCE.On the 31st August the honorable the Leader of the Opposition asked the following question, upon notice -

Will the Minister lay on the table of the Senate all the papers and correspondence relating to the alleged mutiny on the Jervis Bay, including the report of the captain and any other officer or person?

I informed the honorable senator that the Australian Commonwealth Shipping Board was being communicated with in the matter. A reply in the following terms has now been received from the Australian Commonwealth Shipping Board : -

Although a report has been received from the master of the ship, the details furnished have practically already been published extensively in the press, and after due consideration the board does not consider that any good purpose would be served by forwarding any correspondence in the matter.

page 6837

QUESTION

DUTY ON FILMS

Senator CRAWFORD:
Honorary Minister · QUEENSLAND · NAT

– On the 14th

September Senator Guthrie asked the following questions, upon notice -

  1. Is it not a fact that the royal commission on the film industry recommended a duty of 2d. per foot on foreign films?
  2. In dealing with the commission’s report did not the Minister for Trade and Customs, on behalf of the Government, indicate the Government’s intention of placing a duty of 2d. per foot on foreign films ?
  3. Why has the Government disregarded the finding of the commission which was unanimous, regarding the duty upon foreign films, and made the duty1¾d. per foot?
  4. What revenue is derived from the duty on foreign films?
  5. How much more would he derived were the duty 2d.per foot, as recommended by the commission, instead of13/4d. per foot?
  6. What amount of income tax is paid by the importers and/or distributors of foreign films?
  7. Is it not a fact that picture theatres are immune from entertainment tax on all tickets of admission up to 2s. 6d. ?

I am now able to furnish the honorable senator with the following information : -

  1. Yes.
  2. Yes.
  3. Because it was found that an additional duty of one-farthing per foot would produce the extra sum required.
  4. The duty paid on foreign films during 1927-28 was £169,745. This included £3,734 on home kinematograph films dutiable at½d. per foot.
  5. The importations of ordinary foreign films for that year amounted to 20,181,625 feet. An extra id. per foot duty on this quantity would return £27,273.
  6. The information cannot be given, as no record of it is kept.
  7. Picture theatre tickets below 2s. 6d. are immune from Federal entertainment tax.

page 6837

QUESTION

POSTAL DEPARTMENT

Expenditure from Loan Money.

Senator CRAWFORD:
NAT

– On the 15th September, Senator. Chapman asked the following questions, upon notice -

  1. What amount of loan money was expended by the Postmaster-General’s Department in each State on the erection of new buildings in 1927-28?
  2. What amount is provided on the Estimates for each State for 1928-29?
  3. What amount of loan money was expended in each State on the extension of telegraphic and telephonic services in 1927-28 ?
  4. What amount is provided on the Estimates for each State for 1928-29?

I am now in a position to furnish the honorable senator with’ the following information : -

  1. The expenditure of loan money during 1927-28 on building works in general was as follows : -

Figures as to the expenditure on new buildings, as distinct from additions and alterations to buildings, are not available.

  1. The provision for building works in general during 1928-29 is as follows: -

Less amount (?110,432) estimated to remain unexpended at the end of the year, leaving the net provision ?320,000.

  1. The amount of loan money expended on new telegraph and telephone works during 1927-28 was as follows: -
  1. The total sum of ?3,395,000 provided for new telegraph and telephone works during 1928-29 has been tentatively allocated between the several States as follows: -

page 6838

QUESTION

ETHYL CHLORIDE

Senator CRAWFORD:
NAT

– On the 13th September, Senator Chapman asked the following questions, upon notice -

  1. What is the approximate cost of ethyl - chloride in America?
  2. What is the Australian tariff duty?

I am now able to furnish the honorable senator with the following information: -

  1. Latest quotations available are 22 cents per lb. in drums and 24 to 25 cents per lb. in 200-lb. bottles.
  2. Per fluid oz. : - British preferential tariff, 1s. 3d.; general tariff, 2s.

page 6838

QUESTION

EXPORTS OF WINE

Senator CRAWFORD:
NAT

– On the 14th September, Senator Chapman asked the following questions, upon notice -

  1. Is the Minister aware whether very little wine has been exported from Australia under new contract since the reduction of bounty?
  2. What amount of Government money has been used to finance soldier-settler and civilian grape-growers ?
  3. Is the Minister aware that if the surplus cannot profitably be exported a serious position will be created for grape-growers?
  4. Will the Government give its most serious consideration to obtaining an independent report from such a body as the tariff board, as they did before the previous reduction of bounty, in order to have a recommendation as to the best course to pursue in the future in regard to the industry?

I am now in a position to furnish the following replies: -

  1. There has been a heavy falling off in the export of Australian wine, but it is understood that this is due to a great extent to large stocks being unsold in London. The reductions in the rate of bounty were more than counterbalanced by more favorable preferences granted by Great Britain.
  2. Definite figures are not easily obtainable, in view of the fact that soldier settlement is primarily under the control of the States; and, further, that the amount made available under the Wine Export Bounty Act is not paid direct to the grape-growers.
  3. Yes.
  4. The position of the wine industry will continue to receive the earnest consideration of the Government, and any suggestion made on behalf of the industry for the amelioration of present conditions, will be carefully investigated.

page 6838

QUESTION

BEAM WIRELESS PROFITS

Senator THOMAS:
NEW SOUTH WALES · NAT

– I should like to know if the Minister representing the Postmaster-General has been furnished with a reply to a question which I asked on, 6th Septemberwith regard to the profits of the beam wireless service.

Senator CRAWFORD:
NAT

– I regret that the information isnotyet available for the honorable senator.

page 6838

THE LATE SENATOR GIVENS

The PRESIDENT:

– (Senator the Hon. Sir John Newlands). - I desire to inform the Senate that I have received from Mrs. Givens a letter of appreciation and thanks in connexion with the resolution of sympathy passed by the Senate on the occasion of the death of her husband, the late Senator Thomas Givens.

page 6838

QUESTION

FEDERAL CAPITAL TERRITORY

Employees’ Rentals - Representation of Residents: Franchise - Residence of Secretary - Church Sites - Railway Communication

Senator Sir GEORGE PEARCE.On the 12th September, Senator Elliott asked the following questions, upon notice -

  1. Is it a fact that members of the Federal Capital Commission and its employees have a preference over members of the Public Service in regard to rentals of their homes in Canberra ?
  2. What is the extent of such preference; how many homes are so preferentially occupied; and how long is the preference to be continued ?
  3. What is the loss to the taxpayers of the Commonwealth by reason of the occupation of houses by the members of the Commission and its employees instead of by members of the public service or the public?

I am now in a position to advise him as follows : - 1, 2, and 3. The only member of the Commission who occupies a house is the Chief Commissioner, and the conditions of his occupation were fixed by the Government as a part of the terms of his appointment.

At the present time 61 officers and employees are being charged rentals for their homes below the rates which would be paid by officers of the Commonwealth Public Service, if occupying those homes. None of the these officers or employees receives any equivalent allowance payable to public servants under Public Service Regulation 97b.

The total annual rentals that would be paid if public servants occupied the houses would amount to £5,824. From this should be deducted the allowance of 20 per cent. which is paid to public servants. The actual total cost to the public servants would, therefore, be £4,659. The rentals at present paid by Commission officers and employees represent a total annual amount of £3,848.

Action is in course to adjust the rentals of the homes occupied by the Commission officials in question. These are being effected upon the same basis as that generally applied to public servants, and the valuations for this purpose are approaching completion.

Senator FINDLEY:
through Senator Graham

asked the Minister representing the Minister for Home and Territories, upon notice -

  1. How many names appear on the roll of voters for the Federal Capital Territory prepared in accordance with the Liquor Poll Ordinances 1928?
  2. How many of such voters are ratepaying lessees of the Commission?
  3. In the event of an election for a third Commissioner in the Federal Territory, in accordance with proposed legislation, would all persons living without the city area, all persons resident in hotels and boardinghouses, all men in camps, men and women living at the Causeway, and the majority of the shopkeepers in Canberra be disfranchised?
Senator Sir GEORGE PEARCE:

– The following answers havebeen supplied -

  1. Four thousand six hundred and ninetyeight.
  2. This information is not available at present, but, in view of the answer to (3), if the information is still desired, it will be obtained.
  3. The attention of the honorable Senator is invited to provisions of the bill to amend the Seat of Government (Administration) Act introduced in another place, and the amendments to that bill circulated this morning, which indicate the nature of the proposed legislation on the subject.
Senator ELLIOTT:
VICTORIA

asked the Minister representing the Minister for Home and Territories, upon notice -

  1. Why was the interior of the house occupied by the Secretary to the Federal Capital Commission - a temporary structure - panelled with expensive timbers?
  2. What was the total cost of construction of that dwelling?
  3. Were accurate sub-costs of the work kept?
  4. What house and what ground rent does the occupant pay?
  5. Provided that they are prepared to pay the additional rent involved, may public servants have similar panelling incorporated in houses that may be henceforth constructed by the Commission for rental purposes?
  6. If not, why the differentiation between Commission and ordinary public servants?

Senator Sir GEORGE PEARCE.The Minister has advised me that he has called for a report on the matter and the honorable senator will be advised as soon as possible.

Senator ELLIOTT:

asked the Minister representing the Minister for Home and Territories, upon notice -

  1. Is it a fact that one of the most magnicent building sites in Canberra was earmarked on the Griffin Plan as a site for a National Museum ?
  2. Is this site situated immediately opposite the front of Parliament House and between it and Mount Ainslie?
  3. Is it a fact that this magnificent site has been allotted to the Roman Catholic authorities as the site of a cathedral?
  4. By whose authority and under what circumstances was this change brought about?
  5. Were other religious denominations at any time informed that this site was being made available for church or other purposes, and what opportunity was given them of applying for it?
  6. What are the building or other conditions (if any) relating to this site?
  7. Will the Government resume this site for the purpose for which it was originally reserved; if not, why not?

Senator Sir GEORGE PEARCE.The replies supplied by the Minister for Home and Territories are -

  1. No specific site was earmarked on the Griffin Plan for a National Museum.
  2. The only reference to the subject which can be traced is the following reference in Mr. Griffin’s report explanatory of his preliminary plan. After discussing the direct line between Parliament House and Mount Ainslie, he proceeds - “Farther to each side of the land axis are paired galleries of the graphic and plastic arts; the museum for natural history and archaeology; the zoological gardens and the baths, and gymnasia.”

The site tentatively allotted for a Roman Catholic Cathedral is not immediately opposite the front of Parliament House and between it and Mount Ainslie. It is, as a matter of fact, exactly due north of Parliament House, and 3,000 feet from the axial line referred to. 4 and 5. Prior to the appointment of the Federal Capital Commision, various sites had been made available for cathedrals and principal churches for allotment under the Church Lands Leases Ordinance. One of these sites - that referred to - was applied for and tentatively allotted to the Roman Catholic Church. After its appointment the Commission reviewed the position, and, in order to remove any doubt that every church had the same opportunity of selection, re-opened the matter and again invited applications, the Roman Catholic Church being the only applicant for this particular site.

  1. The general conditions regarding the cathedral sites are laid down in the Church Lands Leases Ordinance 1924-1927. When applications were invited by the commission it was made clear that leases would only be granted in cases where churches were able to submit a definite building scheme. The Roman Catholic authorities have not been able to submit such a scheme, and the matter has therefore remained in abeyance and no definite allotment in this case has been made.
  2. See No. 1.
Senator ELLIOTT:

asked the Minister representing the Minister for Works and Railways, upon notice -

  1. Will the Minister cause a survey and estimate of costs to be made of a possible railway route direct from Albury or that vicinity via Holbrook to Canberra and thence via Goulburn to Sydney?
  2. What would be the approximate saving in distance travelled from or to Victoria and other States whose members travel from Melbourne, and what would be the approximate saving in time by using this route compared to the present one?

Senator Sir GEORGE PEARCE.The Minister has supplied the following replies : -

  1. No. This is a matter for the State Government.
  2. See No.1.

page 6840

QUESTION

AIR RECONNAISSANCE

Senator ELLIOTT:

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

  1. Is the Minister aware whether, in the latest pamphlets on the subject issued by the department, it is laid down that divisional and other higher commanders in the forces should take every opportunity to ascend in aeroplanes to accustom themselves to flying and to reconnaissance from the air, as the only means open to them in time of war?
  2. What steps does the Minister propose to encourage this practice in Australia?
Senator Sir GEORGE PEARCE:

– The following replies have been supplied : -

  1. Yes. The pamphlets referred to are issued by the War Office, England, and they lay down that it is advisable for commanders and staff to obtain experience in air reconnaissance.
  2. It is not possible for the present to carry out this policy in toto, but a commencement has been made and selected staff officers attend courses in air reconnaissance at Point Cook, Victoria, and Richmond, New South Wales.

page 6840

QUESTION

PERTH TO WYNDHAM AIR SERVICE

Senator LYNCH:

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

Will the Government include Turkey Creek in the proposed Perth to Wyndham air service?

Senator CRAWFORD:
NAT

– The following reply has been supplied : -

It is expected that it will be possible in the near future to decide the location of landing grounds on the proposed Derby-Wyndhamair route and the question of operating from Hall’s Creek to Wyndham via Turkey Creek in lieu of using the more easterly Ord River route will receive careful consideration.

page 6840

QUESTION

DISABILITIES OF STATES

Non-Publication of Evidence

Senator LYNCH:

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

  1. Has it come to the knowledge of the Government that important evidence given before the Constitution Commission by Mr. Giblin, Deputy Commonwealth Statistician, and Professor Brigden, to the effect that the States of South Australia, Tasmania, and Western Australia were suffering under the operation of the present tariff, was not published in the press, although special facilities were given for doing so?
  2. If this information is correct will the Government enlarge the power of royal commissions in the direction of empowering them to exclude from their sittings representatives of any newspapers that suppresses important evidence given before them?
Senator Sir GEORGE PEARCE:

– The replies to the honorable senator’s questions are as follow: -

  1. No.
  2. See answer to No. 1.

page 6841

QUESTION

SOLOMON ISLANDS MAIL SERVICE

Senator PLAIN:
VICTORIA

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

  1. Will the Government have inserted in future contracts entered into for the Solomon Islands mail service a condition providing that planters and residents in those islands shall have the first right to any passenger accommodation they require as against that required by mere tourists or travellers?
  2. Will the Government refuse to sanction any increase of freights and passenger fares on vessels engaged in such mail service?
Senator CRAWFORD:
NAT

– The replies to the honorable senator’s questions are -

  1. The existing agreement contains the following clause: - “ Provided that residents of the islands at which the steamships employed in the services shall call under this agreement shall, if reasonable notice that passenger accommodation is required has been given to the contractors or their agents, be given preference in the allotment of pas senger accommodation.”

A similar clause will be inserted in any new contract entered into in respect of the services to the Solomon Islands.

  1. It would be necessary, before giving any definite undertaking that this request will be complied with, to consider the effect, financially and otherwise, of such refusal. The matter will receive consideration.

page 6841

ESTATE DUTY ASSESSMENT BILL

Bill received from the House of Representatives.

Standing and Sessional Orders suspended, and bill (on motion by Senator Sir George Pearce) read a first time.

page 6841

INCOME TAX ASSESSMENT BILL 1928

Bill received from the House of Representatives.

Suspension of Standing Orders.

Senator Sir GEORGE PEARCE:
Vice-President of the Executive Council · Western Australia · NAT

[3.24]. - 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.

At a later stage I propose to move the second reading of this bill, which I should like to be dealt with in committee to-day. It is essentially a measure for consideration in committee, seeing that it is largely of a technical nature. If honorable senators consider that it should not be taken to that stage to-day I shall not oppose, the adjournment of the debate until to-morrow.

Senator LYNCH:
Western Australia

– It is perhaps needless for me to say that as a loyal supporter of the Government I do not wish to obstruct the business it introduces; but a request that, so late in the life of this Parliament, we should deal with an important bill, affecting the taxation of incomes in Australia, should not have been made without the Senate being informed whether any vital principle is involved.

Senator Needham:

– A vital principle is involved.

Senator LYNCH:

– I have not seen the bill, and do not know its contents; but I remind honorable senators that, during the closing hours of nearly every session honorable senators are asked to accept, almost without question, measures which come here from another place. The Senate is unlike the Legislative Councils of the States, and its members should enter an emphatic protest against being asked to give hasty decisions on important questions. Such decisions do not enable us to do justice to the measures, to ourselves, or to the country, especially when, as the Leader of the Opposition says is the position in this instance, vital principles are involved. Requests of the nature of that just made by the Leader of the Senate are not peculiar to the present Government; previous governments have adopted the same practice, with the result that this chamber has not always been in a position to do justice to itself or the country. I realize that bills of the nature of that before us cannot originate in the Senate, but we should be given an earlier opportunity to consider them. It is not fair that in the dying hours of Parliament we should be asked to deal with this measure and others which have been foreshadowed. I hope that we shall not have a recurrence of similar requests.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the Executive Council) [3.28]. - In justice to the Government I feel that I should point out that, during this part of the present session, practically every bill introduced by the Government, other than money bills, has been introduced in this chamber. The bill now before us is a money bill, and honorable senators know that, owing to the limitations imposed by the Constitution, such bills cannot be introduced in the Senate. There is no reason why, should honorable senators desire it, the Senate should not sit next week to discuss its business. Those who have studied the bill proclaim it to be a technical measure containing a number of minor amendments to give effect to prnciples already agreed to by Parliament and thought to have been included in existing legislation. This bill contains no new principle; it is simply an amending measure to give effect to principles already accepted bythe Senate.

Senator Needham:

– There is a new principle involved.

Senator Sir GEORGE PEARCE:

– I am prepared to give to honorable senators a full explanation of the proposed amendments when the bill is under discussion.

Question resolved in the affirmative.

Bill (on motion by Senator Sir George Pearce) read a first time.

page 6842

REFERENDUM (CONSTITUTION ALTERATION) BILL

Second Reading

Debate resumed from 14th September (vide page 6727), on motion by Senator Sir Georoe Pearce -

That the bill be now read a second time.

Senator NEEDHAM:
Western Australia

.- The objects of this bill are threefold : to obviate the necessity of publishing a pamphlet setting forth both sides of the question that is to be referred to the people, to lessen the number of informal votes, and to bring about uniformity in our voting system. I believe that it will help to minimize informality of voting. I have always contended that we cannot give too much information to the electors, and that every opportunity should be taken through the press. Parliament, and by means of pamphlets, to disseminate information that will assist electors to cast an intelligent vote. It is generally recognized that the alteration of our Constitution is a very important matter; also, that it is a difficult task to educate the electors to realize the necessity for an alteration. It is because of that that both parties in

Parliament have agreed that it is desirable where there is a difference of opinion between’ the Ministerial party and the Opposition as to a proposed alteration of the Constitution, to issue pamphlets setting forth the affirmative and negative sides of the problem. In this case, however, that is not considered necessary, both parties having agreed that the alteration is imperative. I am glad that the suggestion to bring about uniformity which was made by my colleague, the Leader of the Opposition in the House of Representatives, was approved by the Attorney-General and incorporated in the bill. As the measure is simply a machinery bill, I see no necessity to discuss it further.

Senator MacDONALD:
Queensland

– I agree with the sentiments expressed by Senator Needham, but I take the opportunity to register my protest against the lack of care displayed by the Government in its effort to eliminate informal voting. The system of voting employed to elect this Senate is so intricate that it confounds the electors. Six years ago the Labour party agreed to the adoption of the group system of voting in order to clarify matters and reduce informal voting, but the Government did not go far enough in that direction. It should have allowed each party to do its own grouping, and not necessarily alphabetically.

Senator THOMAS:
NEW SOUTH WALES · NAT

– Less than six years ago I raised the subject, and was unable to obtain the support of any honorable senator opposite.

Senator MacDONALD:

– Unfortunately I was not then a member of the Senate. I support every innovation that tends to reduce informal voting, and that will assist electors to record their votes as they desire. Six years ago I urged the Government to display sufficient ingenuity to amend the electoral law satisfactorily, and I should like an explanation of its dereliction of duty. If a satisfactory explanation is not forthcoming, I shall record my protest by voting against one of the three clauses relating to the matter in this bill. I seek nothing from the Government that would be unfair to the NationalistCountry party.I merely urge that it is but just that each party should be permitted to group its candidates in the order it desires on the ballot-paper. The prevailing system merely engenders bitterness and causes confusion. The Labour party holds a pre-selection plebiscite, and selects its candidates in the order it desires them to enter the Senate ; but under the prevailing system that desire is thwarted. Under it it may happen that the weakest candidates are elected, and in a comparatively few years each party may have its weakest team as its representatives.

Senator Ogden:

– Would not more trouble arise through making the order of selection discretionary ?

Senator MacDONALD:

– No ; it would lead to general satisfaction, as the matter rests purely with the organization of the party concerned. Our electoral law certainly recognizes groups, because the electors are at present forced to vote for groups.

SenatorFoll. - It is a voluntary grouping. .

Senator MacDONALD:

– Not at all.

Senator Foll:

– The honorable senator wants to bring the power of a Labour junta within an act of Parliament.

Senator MacDONALD:

– I do not know of any Labour junta. The executive of the responsible organization would determine the order.

Senator Duncan:

– Our electoral law deals only with individuals. It does not recognize groups.

Senator MacDONALD:

– Groups are recognized because the old alphabetical order of the paper was smashed up by the party opposite. Let me illustrate what the position will be in Queensland in the forthcoming elections. At the top of the ballot-paper we probably shall have the names “ Crawford, Foll, Reid, Shepherd,” followed by the Labour nominees, “ Horn, Lawson, MacDonald, Valentine.”

Senator Foll:

– Last year your party had priority of place on the ballot-paper.

Senator MacDONALD:

– No; priority was taken by the Country party, with its nominees Austen and Fielding. We came second, and the party opposite came third. The Labour party considers that it should be permitted to group the names of its candidates in the order it desires.

Senator Cox:

– The honorable member need not remain in the order he has cited unless he wishes to do so.

Senator MacDONALD:

– The honorable senator does not understand the position.

The PRESIDENT (Senator the Hon. Sir John Newlands). - The honorable senator is out of order in replying continually to interjections.

Senator MacDONALD:

– If I could obtain an intelligent interjection, I should have great pleasure in replying to it.

The PRESIDENT:

– I ask the honorable senator to disregard interjections, whether they are intelligent or not.

Senator MacDONALD:

– Clause 3 of the bill deals with informal ballotpapers. In 1922, 36,000 informal votes were cast in Queensland out of a total of 340,000 voters. Many people formed the opinion that the election should have been declared null and void, because victory for the defeated party might have been secured if an enormous number of votes had not been rendered informal, as many thought, through the non-alphabetical order of the names. This was brought about by grouping the names of the candidates on the ballot-paper and yet compelling the party groups to leave their candidates in alphabetical order, thus making for confusion in recording preference votes. Yet this method is still permitted. Six years ago Senator Reid agreed with me that reform in this direction should be urged. I do not know if he has since found occasion to alter his opinion. I have not discussed the matter with other honorable senators on the opposite side of the chamber, but I at least have his support of six years ago in the attitude I am taking up to-day. Honorable senators sitting in opposition agree with me that without doing injury to any party the Government could bring about the reform I am advocating. Already we have gone some distance in the matter by forcing the adoption of a system of grouping in place of the old system of having the names of all the candidates running down the ballot-paper in alphabetical order. I think the Government could now go a step farther and allow the parties to arrangewithin the groups the order of their candidates, irrespective of alphabetical order. As a protest against the inaction of the Government in this respect I intend on principle to vote against one of the clauses of this bill which relates to the matter of informal votes.

Senator HERBERT HAYS:
Tasmania

– The honorable senator suggests that the parties should be allowed to decide the order in which the names of their candidates appear on ballot-papers. I think that the Government has already done sufficient by providing that the candidates may group themselves, or, if they choose to do so, remain outside a group. If the honorable senator desires it, he can have his name placed on the ballot-paper outside a group. But he suggests that an organization, Labour or Nationalist, should be given the power to say in which order its candidates’ names shall appear on a ballotpaper. There are States where there is very little if any party organization, and in those circumstances great dissatisfaction would arise if organizations were to be given the right to fix the order in which the names of candidates should be placed on ballot-papers.

Senator MacDonald:

– Every State has a distinct Labour organization.

Senator HERBERT HAYS:

– I made no reference to the Labour party. There are already organizations outside the recognized Labour and Nationalist parties, and there may be independent candidates. Who would fix the order in which the names of independent candidates would be placed on a ballot-paper?

Senator MACDONALD:

– Independent candidates can stand independently of organizations.

Senator HERBERT HAYS:

– The Government has already gone a long way in the direction of overcoming what was at one time a rather difficult position by making clear to the electors the party to which each candidate belongs. The candidates themselves indicate the group in which they wish their names to be included, and I think the average elector knows fairly well the group for which be is anxious to vote. It would be absolutely -wrong to give the organizations power to state the order in which the people should vote.

Senator MACDONALD:

– I have not asked for that. All that I have asked for is to give the parties permission to do it.

Senator HERBERT HAYS:

– The honorable senator claims that the organizations shall-

Senator MACDONALD:

– I said “may,” not “shall.”

Senator HERBERT HAYS:

– Very well. The honorable senator asks that the organizations may fix the order in which their respective candidates’ names shall appear on a ballot-paper. But there is no necessity for it. Candidates’ names are already grouped on the ballotpaper, and the electors know which group contains the names of their candidates. We have had evidence that there is less informal voting among supporters of the Labour party than there is among supporters of other parties. I do not think that the present system leads to informal voting, but in any case it would be a dangerous practice to allow the organizations to arrange among themselves the order in which their candidates’ names should appear on ballotpapers.

Senator HOARE:
South Australia

– There is a good deal in what Senator MacDonald has endeavoured to point out. The law already allows the parties to indicate on a ballot-paper the groups to which particular Senate candidates belong.

Senator Cox:

– The parties have no say in that.

Senator HOARE:

– That is true. The candidate himself informs the returning officer of the group in which he wishes his name to be placed. We have already gone that far. Why cannot we go a little further and allow the party, or whoever it may concern, to say which candidate’s name shall appear at the head of any particular group, thus indicating to the electors the candidate to which their first preference should be given?

The PRESIDENT (Senator the Hon. Sir John Newlands). - Order. I think it is time that I reminded honorable senators that this is a bill to authorize the taking of a referendum, and not a bill dealing with the general electoral law.

Senator HOARE:

– But two other honorable senators have been allowed to traverse the ground that I am now seeking to cover.

The PRESIDENT:

– On this bill I cannot allow further discussion on the electoral law.

Senator HOARE:

– Then I have nothing further to say.

Senator MacDonald:

– But this is a matter which affects the electoral law?

The PRESIDENT:

– Order.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 and 2 agreed to.

Clause 3 (Informal ballot-papers).

Senator MacDONALD:
Queensland

– I wish at this stage to protest again against the neglect of the Government to amend the law relating to electoral ballot-papers. It has not attempted to do in regard to Senate elections what it is seeking to do in this bill, namely, to reduce the number of informal ballotpapers.. I shall take every opportunity to urge this reform in our electoral law. The purpose of the clause under discussion is to secure uniformity. We. should use every endeavour to secure uniformity throughout our electoral law in each reference to the will of the people; but there has been a lot of monkeying in these matters in the past. I shall vote against this clause as a protest against the dereliction of duty on the part of the Government in not endeavouring to bring to a satisfactory state of perfection the electoral law of this country, and my protest in this regard extends to those honorable senators, who, in the past, have given expression to views on this matter similar to my own. I have no wish to go over the ground I covered on the second reading, but I cannot refrain from pointing out that for some peculiar reason the Government continues to allow the people to be fooled and fuddled by silly ballot-papers such as we have in the important matter of the election of senators.

Clause agreed to.

Clauses 4 to 6 agreed to.

Title agreed to.

Question proposed -

That the hill be reported without amendment.

Senator MacDONALD:
Queensland

– If one feels that one has a good case one must take every opportunity of putting it forward. I am not vindictive, and I do not claim that my position at the Senate polls six years ago would have been altered if the reform which I am now advocating had been carried into effect in 1922. But I can certainly claim that six years ago the lack of a proper ballot-paper fooled the people and prevented them from coming to a proper decision. That, I think, a study of the informal ballot-papers cast at various Senate elections will prove. Some honorable senators, I am convinced, after hearing them speak, have not studied the matter properly. Having won their elections easily the point that I have brought forward has not been impressed upon them, but in close contrast the position I am supporting becomes immediately plainer. I am not one to claim that honorable senators of the Opposition have been losers more than have honorable senators on the other side of the chamber, but I contend that the form in which the ballot-papers are now presented to the people at an election for members of the Senate does not give them an opportunity to express their true opinions. In a close election candidates representing the Labour party may be defeated because the party executives in the various States are not given an opportunity to place the names of their candidates in nonalphabetical order, and according to party choice, within the party groups on the ballot-papers. This incitement to irregular voting under the preference system leads to many more informal votes. An honorable senator who has claimed that the selection of candidates to the Senate is a matter for the individual is evidently not aware of the actual position. An individual may have every opportunity to offer himself for election, but he does not get very far unless some party organization endorses his candidature.

The TEMPORARY CHAIRMAN (Senator Duncan:
NEW SOUTH WALES

– I ask the honorable senator to confine himself to the question before the Chair. The President has already ruled that a general discussion of the electoral law is not in order upon this bill.

Senator MacDONALD:

– I formally enter my protest against this bill because the Government has neglected its duty by not attempting to amend the electoral law.

Question resolved in the affirmative.

Bill reported without amendment; report adopted.

Bill read a third time.

page 6846

TASMANIA SINKING FUND AGREEMENT BILL

Second Reading

Debate resumed from 14th September (vide page 6733), on motion by Senator Sir George Pearce -

That the bill be now read a second time.

Senator NEEDHAM:
Western Australia

– This measure which is to ratify an agreement entered into between the Commonwealth Government and the Government of Tasmania relating to securities held by the Tasmania Sinking Fund, is associated with the Tasmania Grant Bill recently passed by Parliament. I realize that such an agreement is necessary; but I cannot understand why the authority now sought was not obtained when the bill I have just mentioned was before the Senate. For the past six years Parliament has devoted a good deal of its time to amending bills, and in considering numerous amendments, which are submitted shortly after bills have been introduced. This has been occasioned either by carelessness on the part of the Government or faulty draftsmanship. The Government and not the draftsman is to blame in this instance. Perhaps the Government, with its stupendous majority in this chamber, thinks that it can submit measures in a haphazard fashion ; but it must be apparent to every honorable senator that the introduction of this measure could have been avoided. I have no objection to the bill; but if this Government is returned to power - I sincerely hope that it will not be - I trust that it will handle measures in a more businesslike way.

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

page 6846

ESTATE DUTY ASSESSMENT BILL

Second Reading

Senator Sir GEORGE PEARCE:
Vice-President of the Executive Council · Western Australia · NAT

[4.7]. - I move -

That the bill be now read a second time.

This measure is of a somewhat technical nature, and I crave the indulgence of the Senate while I explain its provisions in detail as that may probably shorten the discussion both on the motion for the second reading and during the committee stage.

The main purpose of the bill is to remedy some defects in the principal act through which loss of revenue has been occurring. Commonwealth estate duty is payable upon the estates of deceased persons in cases in which the total net value of the estate, after deduction of all liabilities, actual and contingent from the gross value, amounts to £1,000 or over. The estate which is subject to duty consists of all real and personal property wherever situated, in the case of a person who was domiciled in Australia, and of all real and personal property in Australia in the case of a person domiciled outside Australia. The particular property falling to be taxed consists of property which was owned by the deceased at the time of his death, and which passed to other persons under his will, or by virtue of the law relating to intestacy, and includes -

  1. gifts inter vivos made by the deceased person within one year before his decease;
  2. property which the deceased settled upon other persons within one year before his decease ;
  3. property in which the deceased had a life interest which was surrendered by him within one year of his decease; and
  4. property in which the deceased had a beneficial interest at the time of his decease, which beneficial interest, by virtue of a settlement or agreement made by him, passed or accrued on or after his decease to or devolved on or after his decease upon any other person.

The terms “ gift inter vivos “ and “ settlement “ are the subjects of fairly elaborate definition in the principal act, but the definitions on the clauses describing the property which is dutiable are in terms which do not enable the department to collect duty on the following property : -

  1. Gifts inter vivos made within one year of the death of the deceased person and representing the difference between the true value of a property transferred to a relative of the deceased principally for natural love and affection and the nominal price, if any, fixed as the monetary consideration for the transfer;
  2. Property comprised in a settle ment made by the deceased person under which he had any interest of any kind for his life; and
  3. Property which had been owned by the deceased person but which, immediately prior to his death, formed the whole or part of property held by him and other persons as joint tenants.
  4. Property representing the whole of the property owned by a deceased person, which he had disposed of to other persons at any time prior to. his death.

The three classes of property first mentioned have escaped duty because the definitions of “gift inter vivos” and “ settlement taken in conjunction with the description of certain properties to be included in the dutiable estate, have not been wide enough to make the duty payable. The last-mentioned class has escaped duty because the act applies only to property in the hands of administrators. Where a deceased person has distributed his estate prior to his death, there is no necessity for an administrator, and, therefore, the whole estate escapes the duty. These cases are rare, but they exist and are therefore provided for in the bill. In regard to the first of the three other classes of property which are at present escaping duty, it may be stated that the present definition of “gift inter vivos “ excludes from the dutiable class of suchgifts, any conveyances or transfers of property in favour of a bona fide purchaser or encumbrancer for valuable consideration. This exception has made it impossible to include in estates any part of the value of property sold in the technical sense by a deceased person to a relative for quite inadequate amounts and principally on account of natural love and affection. For instance a man may sell bona fide to bis son for £100 a property which is worth £1,000. In such a case there has been a clear gift of value in property of £900 for natural love and affection. If the property had been transferred to the son in consideration of natural love and affection only, and the transfer were made within twelve months of the father’s death, the total value of the property would form part of the dutiable estate of the father. It is considered that there is no reason why the £900 in the example already mentioned should not form part of the dutiable estate of the father in such a case. The bill provides for its inclusion in future. In regard to property comprised in a settlement made by the deceased person under which he had any interest of any kind for his life, the present position is that if the deceased person should surrender the interest within one year prior to his death the total value of the property forms part of his estate, but if he should retain the interest until his death no part of the value of the property can be included in his dutiable estate. There are two anomalies here -

  1. In the case of surrendered interests, the total capital value of the property is taxed, whereas the deceased person had only a life interest, the present value of which at the time of surrender would be very much less than the capital value of the property. The bill provides that instead of the total value of the property being taxed, the duty will be levied in future upon the total value or amount which would have been received by the person who surrendered the interest if he had not surrendered it, calculated from the date of the surrender to the date of his death. The anomaly referred to exists as such in the case of life interests under settlements not made by the deceased person. The provision of the law was obviously aimed at surrenders, made prior to death, of life interests held by the deceased person under a settlement made by himself. In such cases the total value of the property rightly falls to be taxed where the life interest was surrendered by the settlee within one year of his death, but it is anomalous that no duty can be charged if the life interest was not surrendered.
  2. The foregoing anomaly is apparent when a comparison is made between such a case and that of a person who did not settle his property upon himself for life, but held it until his death when it passed to other persons in terms of his will. This latter person retains the full control and enjoyment of his property until his death. So also does the person who settles his property in trust for himself with remainder to other persons upon his death. The only difference between these two cases is that in one, the property is devised by will to another person who cannot deal with it until the testator’s death, and in the other, the property is appointed by the settlement to other persons, who, also, cannot deal with it until the settlee’s death. It should be observed that the person who settles his property in trust for his own benefit for life, generally takes care to provide either that he shall be trustee, or that some other person who is trustee shall obtain his consent to any proposed change in the nature of the property or its management or control. In the one case duty is chargeable because the property passes according to will; in the other case duty cannot be charged because the property passes according to a settlement. This distinction is inequitable. It cannot be justified, and is being removed by the bill. There has been considerable loss of revenue through the inability in the past to tax property dealt with in the manner described.

In the case of joint tenancies, the act has failed to reach these because, under the law relating to joint tenancies, the property of the joint tenancy passes to the survivor upon the death of a joint tenant. This feature of the law has been extensively availed of by many persons who have created joint tenancies in connexion with various classes of property, including bank deposits, in order that the property which a deceased transferred to a joint tenancy of which he was a member, should not be included as part of his dutiable estate. Property so dealt with might be indefinitely excluded from an assessment for estate duty by the formation of successive joint tenancies in connexion with it. There has been considerable loss of revenue in the past from this weakness in the law.

The bill contains a provision to prevent any further loss of revenue through lack of proper limitation of the deduction allowable in respect of duty lawfully paid in any country outside Australia in regard to any property of the deceased person which may have been situated outside Australia.

At present, the full amount of the exAustralian duty must be deducted from the total amount of Australian duty as assessed. Sometimes the ex-Australian duty is more than the part of the Australian duty which is attributable to the doubly taxed property, and in those cases the Commonwealth loses part of its legitimate duty on the Australian property. In other cases the ex-Australian duty exceeds the total Australian duty on the whole of the estate. In these cases the Commonwealth loses the whole of its duty on the Australian property.

The bill provides that the deduction to eliminate double taxation shall be the amount of duty paid outside Australia when it is less than the duty payable in Australia on the ex-Australian property, or the amount of the duty payable in Australia on the property when that duty is less than the ex-Australian duty.

It has been found necessary to re-state the provisions of the law relating to settlements, bequests, or devises of property for religious, scientific, charitable or public educational purposes, so as to limit the exemption to bequests for such purposes in Australia, and also to express the intention of Parliament in regard to charitable bequests, that the limitation shall apply only to such bequests when made to public charitable institutions in Australia.

This re-statement of the law in regard to charitable bequests has been necessitated by a decision of the Privy Council over-ruling the judgment of the High Court in the appeal of the trustees of the estate of Peter Stuckey Mitchell, deceased, in respect of a bequest of the residue of the estate of the deceased upon trusts under which prizes were to be awarded to various classes of persons, military, naval and civil, and of both sexes, the merit of the candidate to be ascertained by various physical, moral and literary tests. The High Court held that this bequest is not a charitable bequest within the ‘meaning of the act because its character is not eleemosynary, and because the word “ charitable “ was, in the opinion of the court, used in the act in its popular meaning which involves the idea of assisting poverty or destitution. The Privy Council held that the four words “ religious “ scientific “, “ charitable “ and “public educational” as used in the section are not mutually exclusive, and that the word “charitable “ as used in the act must be given its technical legal meaning as used in the Elizabethan sense, namely.,

Trusts for the relief of poverty ;

Trusts for the advancement of education - although this is already covered by the section;

Trusts for the advancement of religion - already covered by the section;

Trusts for other purposes beneficial to the community, not falling under any of the preceding heads.

When the Estate Duty Act was passed it was intended that the four terms referred to should be mutually exclusive. It is proposed to bring this about by means of the amendment in the bill. The bill will also make clear the charitable purposes intended to be provided for. For this purpose it uses the language which was inserted by Parliament for the same purpose in the Income Tax Assessment Act 1927, in connexion with deductions for donations to public charitable institutions.

Unnecessary loss of revenue on the one hand and lack of power to make refunds in proper cases have been resulting from the provisions of the principal act in regard to the time limit for increasing or reducing assessments. The act provides, in section 20, sub-section (1) that the commissioner may, within one year after the last payment on account of duty on any assessment, make all such alterations in or additions to the assessment as he thinks necessary in order to insure its completeness and accuracy. Unless, therefore, the assessment is actually amended within the time limit, no amendment whatever may be issued either to reduce the assessment or increase it, notwithstanding that the necessity for the amendment may have been discovered by the commissioner within the limit of twelve months. It is proposed in the bill to authorize the amendment of an assessment if the necessity for it becomes known to the commissioner within the period of twelve months, subject, however, to the commissioner informing the administrator as soon as possible after the discovery of his intention to amend the assessment, and subject also to the commissioner making the amendment and notifying it to the administrator within a further period of six months after the expiration of the first period of twelve months.

The bill also provides for making the penalty for late payment of duty the same as under the other taxation acts of the Commonwealth, namely, 10 per cent. per annum on the amount of the duty unpaid, instead of 10 per cent. of that duty.

There is also provision for recovery of duty in cases where there may not be any administrator of an estate, owing to the fact that a deceased person may have disposed of the whole of his property to other persons within one year of his death either by gift inter vivos or settlement. In such cases the property is dutiable as part of the estate of the deceased person, but there is no present power to the commissioner to obtain returns of the property or to collect duty. The provisions of the act in its present form only apply to administrators, and the definition of “ administrator “ does not cover cases of the kind mentioned. Several cases of this nature have arisen.

The bill provides that the persons who received the estate or parts of it from the deceased person shall pay the duty, and that the duty shall be a first charge upon the properties assessed which shall continue to be liable for it in the hands of any purchaser or holder for the payment of the duty so long as it remains unpaid : Provided that no such charge shall be of effect against bona fide purchasers for value who at the time of purchase made due inquiry of the commissioner, but had no notice of any liability for the duty.

Eight of appeal against the amount of the duty is given to any person who becomes liable for the duty under the circumstances mentioned.

It is proposed to amend the provisions of the principal act relating to the power to obtain information, and penalties for failure to furnish information or answer questions or to make returns or for omission of dutiable property from returns or the making of false returns, so as to bring them into line with similar provisions for similar purposes which were incorporated in the Income Tax and Land Tax Assessment Acts 1927. Uniformity of legislation in this connexion will thus be secured.

There are also some small amendments of the principal act on lines similar to those made in 1927 in the Income Tax and Land Tax Assessment Acts in connexion with the office of Second Commissioner of Taxation and the statement of the powers of the Second Commissioner of Taxation.

The bill contains a provision designed to distribute the burden of the duty among the beneficiaries of the estate more equitably than is done by the existing law. The necessity for this alteration was brought under notice by the judgment of the Supreme Court of Victoria in the case of Harper v. Harper. That case disclosed the fact that there are at present very great difficulties confronting an administrator of an estate when the assessment for duty has included property which passed from the testator by gift inter vivos within one year of his death,

Or property which had been settled by the deceased person upon himself for life with remainder over to other persons. Although the administrator in his representative capacity is liable to find the money for payment of the total duty assessed, be has no present right to obtain any contribution towards the duty from the donee of the gift inter vivos, or from a remainderman under a settlement of the kind mentioned.

The provisions of. section 35 of ‘the principal act are therefore being amended so as to cause all beneficiaries, whether or not they are subject to the administrator, to be liable for the tax payable in respect of their particular interests in the estate. The amendment will also provide the necessary machinery for subdividing the duty in an assessment so that each particular beneficiary who desires a separate assessment of the part of the duty applicable to his interest may obtain it.

Debate (on motion by Senator Needham) adjourned.

page 6850

INCOME TAX ASSESSMENT BILL 1928

Second READING

Senator Sir GEORGE PEARCE:
Vice-President of the Executive Council · Western Australia · NAT

[4.25]. - I move -

That the bill be now read a second time.

This measure amends certain principles and provisions of the act, and since, like that with which I have just dealt, it is of a technical character, I propose to put before the Senate a detailed statement of its chief features. There is one amendment which may be regarded by some as introducing a new principle. I refer to the provision dealing with the taxation of life assurance companies; but, really, it is not so much a departure from principle as an application of the provisions of the act to that form of income represented by investments of life assurance companies.

Senator Needham:

– It is a very inequitable form of tax.

Senator Sir GEORGE PEARCE.I disagree with the honorable senator. It is merely an application to life assurance companies of the provisions under which similar incomes of other companies are taxed.

The bill is brought down, in accordance with the statement in the budget speech, to remove certain anomalies recently discovered in the Income Tax Assessment Act, and to close up certain loopholes whereby persons have been able to avoid payment of the same tax as others have contributed to the general revenue.

The aim of the Government always has been, as far as possible, to keep the taxation law simple; but the basic principle upon which the federal taxation law is founded, namely, following the income into the hands of the final recipients, thereby ensuring the greatest degree of equity, involves a considerable amount of complexity. Some of the concessions to taxpayers which have been made from time to time have, unfortunately, been utilized by astute persons to obtain not merely the concession that was being granted, but- to make it the means whereby a very Considerable reduction of taxation might be obtained in their cases.

The present bill deals with certain outstanding instances of this character, which will appeal to the general public as being eminently fair and reasonable to prevent. The first of these is connected with the liquidation of companies. It is reasonable that profits distributed by the liquidator of a company in liquidation should be liable to tax when received by the shareholder in the same manner as when profits are distributed by a company which is not in liquidation. A provision is contained in the bill to deal with this matter. A widespread .practice has arisen in the case of private companies, which have been formed for the purpose of special profit-making schemes and the distribution of the profit among the shareholders going into liquidation before any profit is distributed to the shareholders. This has been done almost entirely for the purpose of enabling the shareholders to escape income tax on the liquidation dividends, because the courts have held that liquidation dividends are distributions of assets and, in the present form of the income tax law, they cannot be classed as income even to the extent to which they have been distributed out of profits. It will be generally admitted that shareholders of companies should not be allowed to escape income tax in such circumstances.

The next anomaly dealt with in the bill arises out of the combined operation of section 21, which exempts one-third of a company’s taxable income from special assessment at shareholders’ rates, and section 16, which exempts shareholders from tax on shares distributed to them upon the capitalization of one-third of the company’s taxable income. This exemption of shares was intended to be complement^ to the provision in section 21 allowing the company to retain one-third of its taxable income for purposes of the expansion of the company’s activities. Neither the company nor the shareholders would be liable to tax at shareholders’ rates on this one-third if the company merely retained it as part of its working funds without capitalizing it. It was necessary, therefore, to provide that if the company did capitalize it and issue shares to the shareholders, the shareholders could not be required to pay tax upon it.

The provision has, however, been found to operate so as to enable the company to capitalize one-third of its taxable income and issue shares for that amount, and also to retain another one-third of its taxable income without being liable for additional tax upon the additional one-third. This result is unavoidable in the present form of the law because the issue of the shares must be treated as a distribution of profit when the Commissioner is comparing two-thirds of the distributable income of the company with the amount actually distributed by the company. The term “ distribution “ covers a distribution of profit by way of shares.

When the Commissioner is making a determination under section 21 of the amount of distribution or additional distribution which the company might have made, he first finds the total distributable income of the company, and excludes onethird of it. From the remaining twothirds he must deduct the amount of the company’s profits which has been distributed to the shareholders in any form. If the company has capitalized one-third of its profits and issued shares for it, that amount must be deducted from the two-thirds of the distributable income, because it represents a distribution of profit. In such a case the company is liable for additional tax at shareholders’ rates upon only one-third of its profits. The shareholders thus escape taxation on two-thirds of the profits, partly in their individual assessments and partly in the company’s assessment under section 21. This result was never intended and it is not right that it should be allowed to continue.

Another provision deals with the abuse of the concession to companies affected by section 21, represented by the time limit within which the Commissioner must make his determination that the company could reasonably have made a distribution, or an additional distribution, to the shareholders. This time limit forces the Commissioner to make a determination within six months after the company’s ordinary assessment has been made. Owing to the necessity to make assessments, as far as possible, within the financial year for which tax is payable so that the tax may be collected within that year, the Commissioner is obliged to make many ordinary assessments of companies on the basis of the returns as lodged without attempting to verify the accuracy of the returns. Then within the six months’ time limit action under section 21 must be taken. That action once taken, it can never be altered, either to increase or to reduce the amount covered by the determination, notwithstanding that subsequent investigation by the department to verify the returns might show that on account of discrepancies in the returns, the company’s ordinary assessment should have been on a greater amount of taxable income. The Government considers that where the Commissioner is of the opinion that the company has furnished an incorrect return or withheld information or supplied incorrect information for the purpose of evading tax in its ordinary assessment, or in the special additional assessment under section 21, the Commissioner should have power to make a determination, or to amend a determination after the expiration of the time limit of six months. The bill provides this power. In this respect the provisions of the law relating to the amendment of determinations after the expiration of the statutory time limit will then harmonize with the provisions already in the law relating to the re-opening of the past assessments of individual taxpayers who may have lodged incorrect returns for the purpose of avoiding tax.

The bill does not authorize any increase in a determination unless the Commissioner is of the opinion that there has been an avoidance of tax in the manner stated; but it will authorize the Commissioner to reduce a determination at any time if the company satisfies him as to a lesser amount which should have been stated in the determination.

Another feature of section 21 which is dealt with by the bill is that which is concerned with the ascertainment of the amount of the distributable income of the company. Distributable income is the amount which is available for distribution among the shareholders. Distribution may take various forms. It may be by way of a cash dividend, or in the form of additional shares issued to the shareholders upon the capitalization of profit; or it may be a transfer of profit to the company’s capital account for the purpose of increasing the amount paid up on the shares. If, therefore, the profits arc used in any of those ways or are capable of being so used, they represent profit which is distributable among the shareholders.

There are numerous cases in which companies have been formed with little or no capital actually paid up, but the companies have undertaken the liability to pay for the company’s undertaking, business, property or other assets out of profits to be derived by it ; and the profits are so applied. These companies have contended that because they have so applied the profits, the profits were not available for distribution among the shareholders. In all of these cases the company’s contentions have rested entirely upon the belief that distribution means a cash distribution. The profits which have been applied by the company in payment for the company’s undertaking, business, property or assets, have in substance represented transfers of the profit to capital account for subsequent use as paid-up capital towards the meeting of the payments mentioned. The profits have, in such cases, been credited to the shareholders by increasing the amount paid up on the shares, because the true position in the accounts of the company is then represented by a reduction in the amount of the liability of the vendor to the company and a corresponding increase in the amount of the paidup capital or of reserves available for transfer to paid-up capital. This same position exists also in regard to the use of profit to repay borrowed money. The money borrowed has been used for expanding the business of the company, and thus in expanding its capital assets, so that any repayment of the borrowed money must represent a reduction in the liability to the lender, with a corresponding increase in the liability to capital, which., in turn, represents an increase in the value of the shareholders’ interests in the paid-up capital. The Government considers that profit applied in the manner indicated should not be allowed to escape additional tax under section 21 merely because it could not have been distributed to the shareholders in cash, since it has, in substance, -been credited to the shareholders and represents benefits received by them out of the company’s profit. It is necessary also to provide against the avoidance of additional taxation under section 21 by a company expending profit, or retaining it to be expended in pursuance of an arrangement made for the purpose of avoidance or reduction of any liability to income tax. The provisions of the bill, which are designed to deal with all the phases of this matter which have been mentioned, are similar to those which were recently inserted in the British Income Tax Act to meet an avoidance of super-tax which was being secured by private companies in similar circumstances. These companies had been formed by wealthy persons with large incomes. Large amounts of the incomes were annually applied by those persons in the improvement of their assets or in acquiring fresh assets. The incidence of the super-tax in England induced these persons to seek the means of avoiding it. They accordingly formed themselves into private companies to take over their own assets, they themselves taking practically the whole of the shares in the companies. The shareholders merely drew enough profit each year to meet their personal requirements and applied the rest of the profit in the improvement or extension of the company’s properties, or to repay borrowed capital used for that purpose. As companies are not liable to super-tax in Great Britain, these wealthy individuals were avoiding super-tax by forming themselves into companies, and making special arrangements for the expenditure of income, or for its retention to be expended in various ways with the object of attempting to prove that it could not have been distributed to the shareholders, and therefore “could not have been made liable to super-tax.

Shareholders in private companies in Australia have been attempting similarly to avoid additional tax on profits at shareholders’ rates by applying their profits to similar purposes, and then claiming that because there was no cash available to distribute to the shareholders they could not be held liable for additional tax on moneys which had, in reality, been used so as to increase the shareholders’ beneficial interests in the assets of the company.

Another means of attempting to avoid income tax, which is assuming very large proportions, is the creation of family trusts in respect of income-producing property for the sole purpose of having the income from the property assessed to a number of persons at reduced rates instead of its being assessed to one person at a higher rate of tax. The most common form of these trusts is that in which an owner of property which is producing a large income, by a deed of trust vests the property in a trustee, usually the person himself, or trustees - usually the person himself and his wife or a member of his family - for the purpose of carrying on the business being conducted on the property, or by means of the particular assets, and holding the income therefrom upon trust either to pay to the beneficiaries specified in the deed the whole or a specified part of their respective shares of the income, or to accumulate the income or a part thereof for the ultimate benefit of the beneficiaries.

Without exception, the persons who make these deeds of trust retain the fullest powers of control, management and disposition of the assets during their lives. Those powers do not differ in any way from those possessed by a person in respect of his own property who has not created a trust in connexion with it, because they do not dispossess themselves of the property in the truest sense of the term. They have merely adopted a legal method of distributing their annual income among relatives so that the amount of tax payable on it will be reduced.

There is, also, no substantial difference between such a case and that of a man who, instead of creating a trust in respect of his income-producing assets, draws up a deed of trust in which he declares that he holds all his income in trust to divide it between himself and others in specified shares. This individual cannot escape tax by means of his deed, because the income is derived by him in the first instance. All that he has done is to declare that he will distribute his income in a particular manner.

The other person who vests his assets in trustees is doing so merely to distribute his income between himself and others in a specified manner; but because he has vested the assets in trust, the law recognizes only the trustee in his representative capacity as having derived the income. When the trustee in his representative capacity distributes the income in accordance with the trusts of the deed, he has nothing left upon which he may be taxed, and the department must look to each beneficiary for tax on the amount of income received by him from the trustee.

The fact that the former owner of the property is also the trustee does not affect the legal position, and, under the present form of the Income Tax Assessment Act, there is no power to aggregate the total income of the trust in one assessment in order that tax may be charged upon it at the rate appropriate to the aggregate income. A similar position was dealt with in 1927 by Parliament when it approved of the provision in the Income Tax Assessment Act 1927 whereby an assessment may be made upon the total income of a husband and wife partnership if the Commissioner is of opinion that the partnership was entered into for the purpose of relieving the husband or wife, or both, from any liability which would have occurred under the act if the partnership had not been formed. The bill contains provisions whereby the family trusts referred to are to be treated as partnerships, and dealt with in the same manner as the husband and wife partnerships if the Commissioner is of the opinion that the trust was created for the purpose of relieving the person who created it from any liability which would have arisen under the act if the trust had not been created.

The bill also deals with a number of anomalies in the act, some of which have only recently been disclosed by a judgment of the Supreme Court of Victoria in an appeal by the Kellow-Falkiner Company Proprietary Limited v. The Commissioner of Taxation, against a determination made by the Commissioner under section 21 of the Income Tax Assessment Act. The judgment disclosed the following facts: -

  1. The law requires the Commissioner to make an assessment of income derived by a taxpayer during a financial year ending on 30th June.
  2. If the Commissioner permits a taxpayer to render a return of income derived during an accounting period ending on some date other than 30th June, the return is only evidence which may be used by the Commissioner in ascertaining the income derived in a period of twelve months ending on 30th June, but the Commissioner is still required by the law to make his assessment on the income derived during the year ending on 30th June.
  3. That in making a determination under section 21 that a company could reasonably have made a distribution or a further distribution of its taxable income among its shareholders, the. Commissioner may only make his determination by reference to a taxable income derived by the company during the year ending on 30th June and cannot base a determination on the income disclosed by a taxpayer’s accounts for any different period of twelve months.

Furthermore, the Commissioner must ascertain whether the company could have made a distribution or a further distribution of its profits during the Commonwealth financial year in which it earned its profits, notwithstanding the fact that the company may not have known the amount of its profits until some later period.

It is obvious that the judgment has rendered the whole act extremely difficult of application, and has rendered section 21 totally inapplicable to the great majority of companies, because those companies do not make up their annual balance of accounts for a year ending on 30th June. Furthermore, . the necessity for the Commissioner to determine whether or not the company could have made a distribution of its profits during the period in which they were earned, is an additional difficulty in the application of the section, if further difficulty were necessary to prevent it operating as was intended. The judgment was delivered a few weeks ago. The Government is, therefore, taking the first opportunity to make proper provision to enable the Commissioner to apply section 21 in the manner in which it was intended to be applied. The bill will validate all past assessments and determinations which have been based upon annual accounts for a period different from the Commonwealth financial year. in the re-casting of section 21, the opportunity is taken to provide for the calculation of the additional tax which is payable by a company upon a determination by the Commissioner under the section, by carrying the notional distribution into the assessments of those shareholders who would have been entitled to receive shares of the distribution if the amount determined by the Commissioner had been actually distributed. With rare exceptions, those shareholders are the ordinary shareholders. Ordinarily, the preference shareholders are not entitled to receive anything more than the fixed percentage payable to them, and only in rare cases are they entitled to a further share of profits. The present form of the law requires the Commissioner to assume that the notional distribution is made to all classes of shareholders in proportion to their interests in the paid-up capital of the company. The bill alters this so as to cause the amount of additional tax which becomes payable by a company under the section to be the same amount as would be payable in the aggregate in their individual assessments by the shareholders who would have received among them the amount determined by the Commissioner if it had actually been distributed.

Another anomaly which requires to be remedied exists in cases where a taxpayer claims that his income has been partly derived from sources outside Australia. There is at present no provision in the act by which the amount of exAustralian income may be readily determined in such cases. For the past ten years the Commissioner of Taxation has been applying a general rule formulated by him after consultation with a number of leading business persons ‘n Australia. With comparatively few exceptions this rule has been accepted as reasonable. Two appellants to the High Court have secured a different basis of apportionment from that employed by the Commissioner, but the court afforded the department no guidance which would facilitate the work of dealing with these cases in the various branches of the department throughout the Commonwealth.

The necessity for apportioning income between sources in Australia and sources outside Australia has arisen in consequence of judgments of the Privy Council and the High Court in appeals against assessments under the New South Wales Income Tax Act upon money received from sources in London in respect of goods produced in Australia and sold to persons in London under a contract drawn up and finally signed in London. These courts have held that where there is a series of activities by one person in one business transaction in which the activities are carried out partly in one country and partly in another, each separate activity in the transaction has, in some measure* contributed to the profit or loss finally realized by the transaction. From this it follows that the profit must be apportioned between the activities in Australia and the activities outside Australia, so as to ascertain the amount of profit which has been derived from Australian sources. The Commissioner of Taxation has been informed by a number of taxpayers that they intend to require him to apportion between Australian and ex-Australian sources amounts of profit, which in past years has been treated by them as taxable in Australia in full as the proceeds of the business conducted by them in Australia.

There are some other taxpayers whoare engaged in the sale in Australia of goods obtained by them from exAustralian sources, who are also contending that the profit derived from their business in Australia has, in the light of the judgments mentioned, been derived from activities outside Australia as well as from activities inside Australia. The Commissioner of Taxation has refused to accede to the claims of those persons on the ground that they have established businesses in Australia for the purpose of supplying residents of Australia with goods. This being the object of the business, it cannot be contended that the persons concerned are carrying on business both inside and outside Australia. Therefore the Commissioner of Taxation has insisted upon levying income tax upon the total net proceeds derived by those businesses from the sales of goods in Australia. The Commissioner’s attitude in this matter has been challenged. The Government considers that the Commissioner is correctly interpreting the will of Parliament in those cases and that his practice should be continued.

In regard to the apportionment of the proceeds derived from the ex-Australian sale of goods exported from Australia, the position is somewhat different from that described in the case of businesses selling imported goods in Australia. In these cases the goods are exported from Australia to overseas selling agents for general sale upon consignment, in the manner found most profitable by the agent. There is no distributing business being carried on outside Australia by the Australian exporter. He has merely exported his goods for sale abroad. There is no difficulty whatever in me case of the Australian taxpayer who exports goods in fulfilment of an order which he has received. The whole of the proceeds in such a transaction are treated as having been derived in Australia. The subject is full of difficulties and complexities, and may only be dealt with reasonably and with all desirable expedition and facility by the granting of special powers of determination to the administration.

The position which has been described has been dealt with in the New Zealand Income Tax Assessment Act in what appears to be a reasonable manner and the Government considers that the Commonwealth law should be amended to incorporate a similar provision to that contained in the New Zealand act. This provision will authorize the prescribing of regulations to cope with the question whether any, and if so, what part, of the income is derived from sources outside Australia in the circumstances, mentioned, and will require the Commissioner to decide the matter .finally and without- objection by the taxpayer where there is no regulation applying to the case.

Subsequent to the passing of the Income Tax Assessment Act 1927, and after the application of its provisions to assessments in some unexpected circumstances, it was found that revenue was being lost through the operation of the provisions of the law relating to the elimination of dividends from assessments when the taxpayer’s rate does not exceed the company rate of ls. in the £1, in conjunction with the provisions for carrying forward losses as deductions against subsequent profits, and the averaging provisions of the act. It was found that some persons were escaping income tax on large amounts of dividends, because they were being eliminated from their assessments through reduction of rate below ls. owing to the deduction of previous losses causing heavy reduction in the average income by reference to which the rate of tax is fixed. Furthermore, that they were becoming entitled to carry forward their losses still further as deductions against the income of subsequent years. In one case which came under notice, the taxpayer had suffered a business loss of about £9,500 in one year and, because he had no other income in that time, the loss was carried forward to the next year. For that period his income amounted to about £11,000, being £1,000 income from his business and £10,000 in dividends. When the loss of £9,500 was deducted from the £11,000 of income, and the remaining £1,500 of income was carried into the calculation of the average income of the five-year period, it was found that the average income was an amount carrying a rate of tax less than ls. This meant that the dividends of £10,000 had to be eliminated from the assessment of the income, and the department then had to commence afresh on the assumption that the only income of that year was the business profit of £1,000. The previous loss of £9,500 had to be set against this £1,000, and that left a residue of loss amounting to £8,500 to be carried forward as a deduction from profit of the succeeding year or years. Thus the taxpayer did not pay anything upon his dividend income, and had become entitled to a deduction in future years in respect of the residue of his loss. This result was never intended by the Government or by Parliament.

The remedy is simple. It consists of providing that instead of eliminating dividends from an assessment when the taxpayer’s rate is less than ls., the dividends shall be retained in the assessment, but the taxpayer shall be allowed a rebate of the amount by which his tax has been increased by including the dividends in his assessment. There is no necessity to make any alteration in the law in connexion with cases in which dividends are included in an assessment and the taxpayer’s rate exceeds ls. in the £1.

Another matter dealt with by the hill is designed to remove an anomaly which has been discovered in connexion with the deduction of losses from profits. A number of cases have come under notice in which taxpayers resident in Australia are in receipt of exempt income from Australian and ex-Australian sources, and that in their own personal accounts this income is used to assist them to recoup any Australian loss they may have suffered. Under the present form of the law, the Australian loss is allowed in full as a deduction against any assessable income derived by the taxpayer from Australian sources. This is considered to be an advantage enjoyed by the taxpayer which is unfair to the Commonwealth and to other taxpayers who have to contribute to the revenue. Such cases at once raise the question of the general ability of the taxpayer to pay his tax. That ability may very properly be measured against the total income derived by him from all sources, so that when a concession is granted to the taxpayer in the shape of deduction of losses from profits and carrying forward unrecouped benefit against future income, it is proper that his benefit should he limited to the excess of his loss over any net income received by him which is not taxed by the Commonwealth. The bill makes the necessary provision to give effect to this view. In doing so it provides that any loss suffered by the taxpayer in carrying on a business outside Australia shall be deducted from the exempt income up to the amount of that income before the Australian loss is set against the exempt income. In the event of the ex-Australian loss absorbing the whole of the exempt income, the whole of an Australian loss would become deductible from assessable income derived from Australian sources.

An important matter dealt with in the bill has relation to the collection of income tax upon freight and passage moneys received by owners and charterers of ships whose principal place of business is out of Australia, in respect of freight, passengers, mails, &c, which are shipped in Australia. Quite recently some difficulties have arisen in the application of the existing section of the act dealing with this subject, more especially in connexion with vessels which are under the control of public authorities in other countries which carry on shipping business under statutory authority granted by the Governments of those countries. Cases have arisen where the assessments issued by the Commissioner of Taxation have not been paid. Whilst power is granted to a collector of customs to refuse clearance to a vessel until tax has been paid, the Commissioner has refrained from requiring that officer to take such a step pending the examination of other means which might be taken. I am advised that recovery of the tax would be facilitated by provision in the act for obtaining an order of an Australian court against the master of the ship for the amount of the tax; upon which the tax would be paid or a guarantee given for its payment by responsible authority located in Australia, so that .the collector of customs may grant a clearance to the vessel. The bill contains provisions which will enable this course to be taken in future.

It has recently been discovered that the act does not limit deductions of calls paid to companies engaged in afforestation in Australia, but allows deductions to such companies carrying on the business of afforestation in any part of the world. The intention of Parliament was to encourage this class of business in Australia, and the bill will express that intention in definite terms.

Another similar provision in the bill relates to deductions of contributions made to public authorities, not only in Australia, but elsewhere, which are engaged in research into the causes, prevention and cure of disease in animals, plants and human beings. In regard to this matter also, the object of the deduction was to encourage persons to assist in this work by public authorities in Australia engaged in it.

The bill will remove another cause of loss of revenue due to the present wording of the act in relation to the amount of the deduction which is allowed by way of annual sinking fund to recoup the purchase price paid for a lease. There are two phases of this subject. The first is the necessity to allow a deduction of a full year’s sinking fund in every assessment during the period of the lease, notwithstanding that the lease may have been acquired or may terminate during the course of an income year. There is no present provision in the law whereby the deduction might be a fractional part of the sinking fund in respect of a commencing or terminating year during which the lease was held for part of the year only. This is provided for by the bill. The second phase of the subject refers to the amount of the deduction to be allowed to a lessor upon the sale of his lease in ascertaining the taxable profit on the sale when the circumstances of the case render the profit taxable as income derived from carrying on a business or a scheme for deriving profit by the acquisition and sale of the lease. There are numerous cases in which persons acquire leases for the purpose of reselling them at a profit. In such cases the profit is liable to income tax. In ascertaining the profit under ordinary circumstances, a deduction is allowable from the sale price of the amount originally paid for the lease. But seeing that the department is not aware until a sale takes place whether the vendor lessee is or is not taxable upon such profit, it is bound to allow to him, while he holds the lease, a deduction of the annual sinking fund required to recoup the price he paid for the lease. When the lease is sold, the present form of the law entitles the vendor to a deduction of the full cost to him of the lease, notwithstanding that he may already have amortized part of that cost out of his annual income during the time he held the lease. This double deduction is not proper. The bill, therefore, provides that in the assessment of the proceeds of the sale of the lease, the deduction in respect of cost-price shall be the cost-price reduced by the total amount of the sinking fund deductions already allowed to the taxpayer.

Another matter dealt with by the bill arises out of a doubt expressed by the Income Tax Board of Review as to whether the present wording of the act, which allows deductions for bad debts, limits the deductions to bad debts of a revenue nature or applies also to bad debts of a capital nature. The scheme of the Income Tax Assessment Act is to levy tax upon income and to disallow all expenditure or losses in the nature of expenditure or loss of capital. The intention of the relevant section - section 25g of the principal act - as well as the invariable attitude of the department, has been to limit the deduction to bad debts incurred in trading or by businesses engaged in the lending of money. The practice of the department is to see whether the deductions claimed in respect of bad debts represent amounts which have formerly been brought to account as income liable to tax. In order that there may be no doubt on the subject, the bill contains several amendments which are necessary to attain that end.

The bill also contains a provision dealing with the application of the averaging provisions of the act to the assessments of income derived in the capacity of trustee by trustee companies. The tax payable by a company upon its own income is paid at the flat rate of ls. in the £ upon the actual amount of each year’s taxable income. Section 13 (2) of the principal act applies the averaging provisions to every taxpayer other than a company. A trustee company is a taxpayer in respect of its own income and is also a taxpayer in a representative capacity in respect of the income of a trust estate administered by it. Under the terms of section 13 (2) the trustee company is excluded from the averaging provisions of the law both in respect of its own income and in respect of the trust estate income. In the case of many trust estates, where the income assessable to the trustee is small, the exclusion of the trustee company from the averaging provisions compels the trust estate to suffer payment of tax at the fiat rate of ls. in the £, whereas if the trustee had been an individual, a rate less than ls. in the £ would have been payable. On the other hand, if the trust estate income assessable to the trustee had been large, it escapes tax at a higher rate than ls., which would have been payable if the trustee had not been a company. In the great majority of cases the amount of income assesssable to a trustee is small and would be assessable at less than ls. in the £. It is considered that all trustees should be assessed in accordance with the averaging provisions, and the bill provides for this by a slight amendment of section 13 (2) of the principal act, so that tax on income derived by a company as a trustee shall be assessed in accordance with the averaging provisions of the act.

Another clause of the bill is intended to give statutory authority to a departmental practice established by the Commissioner of Taxation to prevent double taxation upon company profits when distributed to shareholders subsequently to a special assessment of the same profits to the company under section 21. The departmental practice has been based upon the fact that the profit has been deemed to have been distributed at the time of the Commissioner’s determination under section 21, and the company has already paid tax in consequence of the Commissioner’s determination, so that when the profit is subsequently distributed to the shareholders, it would not be right to collect tax a second time on the profits by assessing the shareholders upon it. The Commissioner merely includes the actual distribution in the shareholders’ assessments for the purpose of calculating the average income by reference to which the shareholder’s individual rate of tax is ascertained. This is done because, when the national distribution is taxed in the hands of the company, the notional distribution is not retained in the shareholder’s assessment to ascertain his average income for future assessments. It is necessary and desirable that the Commissioner should have statutory authority for his practice and this is provided by the hill.

Another important matter covered by the bill relates to the secrecy section of the principal act. An amendment of that section is proposed in order to prevent publication to an appellant before the Income Tax Board of Review of information contained in another taxpayer’s return when that information has been used by the Commissioner as a basis for the assessment of the income of the appellant taxpayer against which he is appealing. There are cases where the Commissioner considers that a taxpayer’s return does not disclose the full taxable income derived by him. Reference to returns of similar businesses enables the Commissioner to form an opinion as to what amount of income might reasonably have been derived by the particular taxpayer whose return is ‘being assessed.

The Commissioner then makes his assessment of that taxpayer’s income upon the basis of the returns of the other taxpayers carrying on similar business. The appellant taxpayer when before the board of review has the fullest opportunity to demonstate to the board what his true income is, and cannot be prejudiced in any way by the non-disclosure to him of the affairs of his competitors. At the same time, the hoard of review might consider itself bound to disclose to the appellant the information upon which the Commissioner made his assessment. It is considered that such a disclosure of the affairs of a taxpayer who is not a party in the case before the board of review should not be permitted. The proposed amendment will, therefore, place upon the board of review the same obligations that are placed by the principal act upon officers of the department not to divulge to any person any information coming confidentially to their knowledge.

The averaging provisions of the act have been found to require slight amendment so as to remove an anomaly that has arisen in connexion with cases where some taxpayers are escaping full taxation owing to the receipt of unusual income in one year with no prospect of further receipts of the kind. The portion of the principal act which produces this result is sub-section 9 of section 13. That section provides that where a taxpayer establishes that, owing to his retirement from his occupation, or from any other cause, his taxable income has been permanently reduced to an amount which is less than two-thirds of the average taxable income by reference to which his rate of tax would be calculated, apart from the provisions of the sub-section, he shall be assessed, and the averaging provisions of the act shall thereafter apply as if he had never been a taxpayer in a previous year. The taxpayer with the unusual income is first assessed on that, and any other income of the same year at the rate applicable to an average in-, come for the five-year period ending with that year of unusual income. In a case which has come under notice, the rate applicable to that average income is much less than the rate which would apply to the income of the particular year taken by itself. Thus the taxpayer escapes full tax on the unusual income in that assessment. In the following year, the taxpayer’s income drops to its normal amount, and in the case which has come under notice, he is able to show that that normal income is less than two-thirds of the taxable income of the five-year period by reference to which his rate of tax is calculated. Under the terras of the present sub-section, he is entitled to be assessed on the normal income at its own rate, and, therefore, escapes for all time the full tax on his unusual income. This escape from tax is not equitable. To prevent such losses in future the bill provides that the average taxable income, two-thirds of which is to be compared with the actual income being assessed, means the average taxable income calculated after excluding any income received by the taxpayer from sources from which he does not usually receive income.

One of the most important provisions of this bill relates to the taxation of life assurance companies. This provision will give effect to the Governments policy in this connexion announced in the budget speech. Hitherto all life insurance companies have escaped payment of Federal income tax because, in addition to being allowed deductions of all expenditure incurred in gaining premium and investment income and any other income, the companies have been allowed deductions of all distributions of the income among members of the companies - covering bonuses to policy-holders and dividends to shareholders - and, in addition, a deduction has been allowed by the act of the whole of the premium income. The premium income has in all cases greatly exceeded the net income from investments, so that no taxable income has ever remained in the case of any life insurance company. The Government considers that there is full justification for requiring life insurance companies to contribute something towards the revenue. It is estimated that the present proposals will yield about £338,000 per annum in revenue. Life insurance companies have been deriving an average net profit from their investments of 5½ per cent. The majority of the companies make reservations to meet liabilities on a basis of 3½ per cent. compound interest.

A few of the companies value their liabilities on a 4 per cent. basis. The companies are, therefore, deriving a clear profit of from l½ to 2 per cent. on the whole of their investments, assuming that the liabilities amount to a sum equal to the whole of the investments, which is improbable. It is considered that the interests of the companies and policy-holders will not be prejudiced in any way by the proposed tax, since the great bulk of the companies’ net profits on investments after providing for risks will still remain in their hands. The bill proposes that life insurance companies shall be taxed on all net income except income from premiums and considerations received in respect of annuities granted.Rebates to prevent double taxation will, of course, be allowable on shareholders’ dividends in the same manner as double taxation is prevented in the case of shareholders in other companies.

The bill also contains a few minor machinery amendments and amendments which are consequential to some of the principal amendments I have already explained.

Senator NEEDHAM:
Western Australia

– After listening to the explanation of the provisions of the bill I have no intention of wading through the mass of technicalities to which the right honorable the Leader of the Senate has referred. The bill is of a highly technical character requiring close study, and I repeat what Senator Lynch said a little while ago, that it is regrettable that measures of this kind should be brought down in the dying moments of Parliament. If anomalies have been found in our income tax law, their existence has been known sufficiently long to enable the Commissioner to formulate amendments and submit them to Parliament at a time when Parliament could deal with them properly, and certainly at a more opportune time than when we are rushing not only to the close of a session, but also to the close of Parliament itself. Most of the provisions of this bill can be more effectively discussed in committee, but I intend at this stage to say a few words in regard to clause 8, which deals with taxation of insurance companies. I say unhesitatingly that it is unjust to impose income taxation on mutual insurance companies.

Senator Sir George Pearce:

– Why?

Senator NEEDHAM:

– I shall explain later. The right honorable gentleman said that some of the amendments are based on the British Income Tax Act.

Senator Sir George Pearce:

– Not in relation to this matter.

Senator NEEDHAM:

– Did not the Minister say that some provisions of the British Income Tax Act have been incorporated in this bill? If the imposition of a tax upon mutual assurance companies has been copied from the British Income Tax Act-

Senator Sir George Pearce:

– I did not say that.

Senator NEEDHAM:

– I am not prepared to follow the bad precedent of a Tory government. We are not here to follow British precedents, but, if necessary, to establish new ones.

Senator Sir George Pearce:

– In the taxation of life assurance companies we are not following the example of the British Government, but of State Governments.

Senator NEEDHAM:

– The example is a bad one. The effect of the clause in which provision is made for taxing assurance companies will be to raise £338,000 ner annum. The budget speech delivered recently by an allegedly economical Treasurer revealed that in the course of a year he had “ slipped “ in his financial transactions to the ex-tent of, approximately, £5,000,000, as in addition to the surplus carried forward from the previous year there was at the end of last financial year a deficit of over £2,600,000. The Treasurer stated that the Government did not propose to increase taxation or to reduce expenditure to any extent in governmental activities; but, notwithstanding such an assertion, it now submits a proposal under which it will collect over £300,000 from the thrifty men and women in this community who have had sufficient foresight to provide, by means of life assurance, for those dependent upon them. The proposed tax, which is not only inequitable but unjust, will fall very heavily upon many good citizens. In 1925 the Prime Minister said that the present Government was not a rich man’s government, but a poor man’s government. But every action it has taken during the past three years has been to legislate for the rich, to the detriment of the poor.

Senator Ogden:

– I think they will be catching some of their friends under this proposal.

Senator NEEDHAM:

- Senator Ogden should give that information to the National caucus, which, notwithstanding all he has said concerning it, he has recently joined. In proof of my assertion that this is a rich man’s government, I may say that there are persons with incomes ranging from £3,000 and over annually, who have benefited by recent reductions in taxation rates to the extent of £150 annually and upwards; whilst the rates of those on the bread line have not been reduced. There are a number of clauses in the measure that are necessary in order to remove anomalies and to close up loopholes through which taxation has been evaded. On many occasions honorable senators on this side of the chamber and honorable members in Opposition in another place, have directed attention to the fact that in consequence of these loopholes honest persons have to pay more in order to compensate for the losses sustained by the action of dishonest taxpayers.

The main feature of the bill is contained in clause 8, which provides for the taxation of the net income derived from the invested funds of insurance companies. I am not objecting to a tax on non-mutual companies, as such a tax should be imposed, but as the funds of mutual assurance companies are represented chiefly in the premiums paid the imposition of this tax will he reflected in the bonuses that the policy-holders receive. According to the latest statistics, there were in 1926 no less than 2,244,000 holders of ordinary and industrial policies. Nearly a quarter of a million of our people realize the necessity of life assurance, and by spending their money in this way are reducing the amount to be provided for old-age and invalid pensions, and in that way are assisting the Government and the nation. The Government has recognized their efforts by allowing-in taxation returns a deduction up to £50 for premiums paid to life assurance companies. The Minister, -when replying, will probably say that the companies will have to pay the tax, but whilst that may be so in the case of non-mutual concerns, the policy-holders in mutual companies will be indirectly responsible. The Treasurer, who is unfortunately the custodian of the public purse, has lightly disposed of his deficit of over £2,500,000 by placing it to a suspense account; but the men and women whom the provisions of this bill most vitally affect have no such opportunity of disposing of their liabilities. ‘ I have referred briefly to the inequitable provisions of clause 8, which I hope will be deleted in committee. I ask honorable senators to peruse the clause carefully to see what will be its effect upon those people who, instead of being taxed to the extent contemplated by the bill, should be encouraged for their thrift and industry.

Senator DUNCAN:
New South Wales

– The bill is not an easy one to discuss or comprehend. As I approach the consideration of it I am reminded of a story which I read in last night’s Sydney Evening News. It was portion of a special article written by the Kev. Father C. O. Martindale, who recalled an amusing incident that occurred in a station restaurant where he met a certain sergeant-major who insisted on discussing with him the Darwinian theory and one or two other matters. This is how the sergeant-major put his view of the theory to Father Martindale - “ Ah ! there’s some as may, and some as mayn’t; but may or mayn’t, there’ll be many what will think different from what they do, nor yet from what they did.” The reverend gentleman said that he was so struck with the wisdom of this involved statement that he learned it by heart, and commended it to his readers for their interpretation. It occurs to me that this Income Tax Assessment Bill is just about as involved as that observation. But the fact that it is a difficult measure to discuss, does not relieve honorable senators of the obligation to consider it and endeavour to understand its provisions.

Senator MacDonald:

– Why not urge the Government to give us a week off to consider it?

Senator DUNCAN:

– The duty is’ laid on us to consider the measure, to see if the Government’s proposal can be justified. Senator MacDonald has suggested that we should endeavour to get a week off to consider it. The same suggestion in effect, has just been made by Senator Needham, and we are given to understand that they are not the only persons who are complaining that ample opportunity has not been given to study this measure. Only to-day I received from Mr. Geo. A. Parkes, the President of the Sydney Chamber of Commerce, the following urgent telegram: -

This chamber only just seen new income taxation bill. Strongly protest against new provisions proposed without opportunity of criticism or suggestion, particularly deprival several cases of taxpayers right of appeal from Commissioner, contrary to principles laid down by Government. Desire delay pending specific representation.

I could understand a complaint like this coming from a number of smaller bodies in regard to a bill of this nature, but I would point out to honorable senators opposite and to those who are protesting, that reasonable time has been given to consider it. There was a fairly long discussion upon it in another place, where a full explanation of its provisions was given by the Treasurer (Dr. Earle Page) and the Prime Minister (Mr. Bruce). There was keen criticism of its provisions by . the Leader of the Opposition (Mr. Scullin) and other honorable members. This being so I suggest that a very fair opportunity has b’een given to any persons who wished to make representations to honorable senators or to the Government before the bill reached its present stage.

Senator MacDonald:

– The Sydney Chamber of Commerce says “ No.” . j.

Senator DUNCAN:

– The bill was before another place for at least a week. During that time the Chamber of Commerce, with all the experts that are readily available to it, could have given it a fair amount of consideration. I am sorry if that body has not done so. I have not been in a better position. I have not at my disposal a staff of clerks to make inquiries for me, or prepare material in criticism of the bill. I have been obliged to’ do all my own work.

Nevertheless, I feel that I have had reasonable opportunity to make myself acquainted with its provisions, and to determine my attitude towards it. Whilst I have every sympathy with members of the Sydney Chamber of Commerce, with Senator Needham and others who complain that they have not been able to study the bill as they would have liked to do, I feel that I am sufficiently conversant with its provisions to be able to make up my mind. If others are not in this position, the fault, to some extent at all events, is theirs.

I wish. for a few moments to deal with that aspect of the measure to which Senator Needham directed his criticism, namely, the taxation of life assurance companies. The honorable senator returned again and again to this phase of the bill. I cannot help feeling that at last he is giving evidence of a very tender regard for insurance companies.

Senator MacDonald:

– Not at all.

Senator DUNCAN:

– There was a time when the honorable senator was not so kindly disposed towards “ these capitalistic institutions,” as they are termed by our friends of the Labour party.

Senator Foll:

– He is becoming conservative.

Senator DUNCAN:

– Possibly that is the explanation. There are two forms of assurance companies - mutual and nonmutual concerns. Senator Needham suggests that it is unjust to tax their investments, and says, in effect, that the proposal is equivalent to the levying of taxation on the workers and other thrifty persons in the community. If the honorable senator carries his argument to its logical conclusion, he must also protest against the taxation of investments of private banking institutions, because the savings of many workers are also invested in those concerns. He might argue that the taxation of such profits earned affect the payment of interest on fixed deposits. As a rule the ordinary working-man does not insure his life for a large sum of money. It follows, therefore, that the taxation of life assurance companies investments cannot affect his bonus payments to any appreciable extent because in any case his bonus would amount to only a few pounds per annum.

I remind Senator Needham that all life assurance companies are obliged by the law to render income returns but they are allowed, and this applies to all insurance companies, to deduct the whole of the expenditure incurred in producing the assessable income, and the net amount is then subject to certain special deductions, as in cases where bonuses or dividends are paid to the policy-holders. This applies to the whole of the premium income of a company. This proposal does not suggest an intention on the part of the Government to injure materially the business of life assurance societies. Under the present system of deductions the only income liable for taxation is the income from investments. But this income as well as the premium income is always less than the expenditure incurred in earning it, with the result that there has never been any taxable income left on which companies could be taxed.

Senator Ogden:

– Does that apply to proprietary companies as well?

Senator DUNCAN:

– I shall deal with the position of proprietary companies before I resume my seat. There is another interesting fact to be considered in connexion with the proposal to levy taxation upon life assurance companies. In the Sydney Evening News of yesterday’s date, there appears the following statement : -

Operating in Australia is a vast amount of foreign insurance - American, French, Dutch and Japanese, as well as British. It is computed that £4,000,000 a year is drained out of Australia into channels of oversea insurance.

When Senator Needham was speaking a few minutes ago, I interjected and drew his attention to the fact that the majority of the insurance companies operating in Australia are not Australian concerns. They are overseas companies which are represented in this country by branch offices. The whole of the profits derived from the Australian section of their businesses goes overseas. At present it is extremely difficult to tax such profits. In the circumstances, is it wrong for the Government to endeavour to tighten up our income tax legislation so that we may obtain some revenue from foreign insurance companies, the majority of which are proprietary and limited liability concerns? I cannot help feeling surprised that Senator Needham should express himself so feelingly on behalf of these companies. Many of his friends, I know, regard them as “ capitalistic “ institutions.

I wish now to say a word or two about the position of mutual companies. The bill proposes to levy income tax on the net income of mutual companies, and upon the investment income, plus the part of any other income distributed in dividends or added to the paid-up capital by life insurance companies which are not mutual companies. In the case of mutual companies the premium income and all costs incurred in making it, are to be excluded from the assessments. In the case of non-mutual companies there will be excluded that part of the premium income which is not distributed in dividends or added to the paid-up capital, together with all expenditure incurred in connexion with that part of the premium income which is to be excluded. Provision is also made to tax the nonmutual companies on amounts distributed as dividends or added to the paid-up capital drawn from the previous year’s income excluded from the assessment. The new provision will place all proprietary companies in the same position that ordinary trading companies occupy as regards income tax. Mutual companies, however, will be permitted to make substantial reductions in respect of the expenses incurred in earning their gross income, so that it does not seem that they will suffer any great hardship from the passing of the bill. In any case, seeing that they have the protection of the law in other respects, and that Australia provides them with their opportunities, they should not object to paying something for such privileges. Even though the payment of taxation will, to some extent, affect their policy holders, no great hard-, ship will be incurred; the amount which will be deducted from each individual policy holder or shareholder in respect of any bonus given t6 him as a result of the operations of the company will be negligible.

Senator Ogden:

– Will it not raise the premium rates?

Senator DUNCAN:

– I do not think there is any possibility of that happening, It may somewhat reduce the bonus; but any reduction of bonus would be so small as not seriously to affect those persons in the community in whom Senator Needham has so great an interest.

The bill has not been introduced because the Government is particularly desirous at this stage in the life of this Parliament to impose additional taxation. That result is only incidental to the chief purpose of the measure, which is to prevent leakages of taxation. Senator Needham wanted to know why legislation to prevent leakages of taxation was not introduced long ago. I remind him that some of these leakages have been detected, only within the last few months as a result of decisions of the courts. The taxation authorities have availed themselves of the first opportunity of asking Parliament to block up the loopholes in the act. As has been explained by the right honorable the Leader of the Senate, the step which the Commissioner is now taking is probably the only one available to him to make the act applicable to all taxpayers in the community. Many political economists, particularly Adam Smith, have laid down the principle that any taxation levied must be levied in accordance with considerations of equity and the ability of the taxpayer to pay. There have been many evasions of the Income Tax Act since the last series “of amendments was agreed to by Parliament.

Senator MacDonald:

– There was, for instance, the notorious Abrahams case.

Senator DUNCAN:

– Those evasions were due, not to the administration of the legislation, but to the wording of the act, and to -the decisions of the courts. Many taxpayers are only too ready to avail themselves of opportunities to evade taxation. The fault in the past has been with the legislation, not with the taxpayer. If any one is to be blamed, it is the man who has paid taxes when he need not have done so. Thousands of taxpayers have paid tens of thousands of pounds in taxes which they were not legally bound to pay. A business man who avails himself of a loophole in legislation to avoid the payment of taxation has an advantage over his competitors who do not so avail themselves of the loopholes in our legislation. We must get back to the principle enunciated by Adam Smith, namely, that of equality under the law. This legislation provides that there shall be absolute equality under the law, that every person liable to pay income tax shall pay it. Whether the imposition of the tax itself is right or wrong is another matter. If honorable senators opposite want to relieve the people of the burden of taxation which they at present bear there is another way to do it. They could propose that the incidence of income taxation be substantially reduced.

Senator MacDonald:

– And increased in the higher grades.

Senator DUNCAN:

– When the Labour party, to which honorable senators opposite belong, has had the opportunity in the several States to reduce income taxation, it has not done so. On the contrary, Labour governments in New South Wales, Queensland and elsewhere have increased its incidence so substantially that industry has been affected, and unemployment created, with the result that conditions generally have become worse. It is not proposed to do anything of that kind under this bill, but to treat every section of the community fairly. Senator MacDonald would have us believe that increased taxation is borne chiefly by the workers. I propose to bring before the Senate some statistics to show that the bulk of our income taxation is paid, hot by the workers, but by the captains of industry - I refer to Federal income tax, not to that imposed by the States. In the Sydney Morning Herald of the 14th September, under the heading, “Who pays the income tax,” the following appears : -

Federal income tax was assessed at £9,324,992 for the year 1920-27, on the incomes of 231,193 individuals and 8,109 companies. The companies were assessed to pay £2,0(50,203, equal to 284 per cent, of the total. Of individual taxpayers, there were 127,059 on the lower classification, those with taxable incomes of £200 and under. They contributed toward the revenue £217,702. In other words, 55.22 per cent, of the taxpayers supplied 2.2 per cent, of the tax. The highest classification, that of individuals with incomes exceeding £1,000, numbered 27,019, and they paid tax amounting to £5,004,G30, that is, 11.95 per cent, of the taxpayers supplied 60.1 per cent, of the tax.

Senator Ogden:

– The worker pays the customs taxation.

Senator DUNCAN:

– That is another matter. Honorable senators opposite are strong advocates of taxation by means of customs duties. Indeed, the heavier the customs duties proposed the louder they cheer. Yet the worker pays most of thai taxation. Direct taxation is always unpopular, and, therefore, more difficult to impose than is indirect taxation. But direct taxation enables us to see who really pays the expenses of government. Honorable senators opposite may say that, after all, many of those who pay taxes are merely agents for collection. That is partly true, but if business men and others do make large profits and have to pay large sums as taxes on their incomes their success is due to their initiative and ability rather than to the efforts of those whom they employ.

The bill extends in certain directions the scope and application of the law. Some of the amendments favour the taxpayers, while others do not. Still others are purely administrative, and these constitute the majority of the proposed amendments. Among the provisions which are in favour of taxpayers is clause 3, which prevents the publication to an appellant before a board of review of information contained in another taxpayer’s return which may have been used by the Commissioner as a basis for assessing the tax against which the appeal is made. The combined effect of the amendments contained in paragraphs a and b of clause 4 is to bring trustee companies within the operation of the averaging provisions I have already mentioned. That is an advantage to taxpayers. The purpose of clause 6 is to obviate the payment of double taxation on the income of a company, and to provide for a rebate of tax. That, also, favours taxpayers. The proposed new section 16c of the principal act, dealt with in clause 7, gives effect to the decision of the Government not to legislate at present to levy income tax on exAustralian income derived from investments made by Australians outside Australia. That also is in favour of taxpayers. Clause 8, which will be new sub-section 4a of section 20, gives legislative authority to the departmental practice of preventing double taxation upon company profits when distributed to shareholders subsequently to the special assessment of the profits of the company as provided under section 21 of the principal act. This is in favour of the taxpayer. Clause 9a amends section 21 (3) of the principal act and permits the lodging of returns msec! on the income of accounting periods which differ from that prescribed in. section 13 (1). This is already the practice of the department, and the innovation merely gives it parliamentary sanction. It, too, is in favour of the taxpayer. Paragraphs a, b and c of clause 13 make it quite clear that deductions in respect of bad debts are allowable. This is at present in doubt, and the new provision is clearly in favour of the taxpayers. It will therefore be seen that the bill is not designed merely to add to the burden of taxpayers, but that it relieves them of a great number of inequalities which now exist.

I shall now deal with the clauses that, in my opinion, are not in favour of the taxpayer, but> rather restrict his scope and impose burdens upon him. first of all there is clause 2, which defines “liquidator “. It is considered desirable that the general machinery of the act should be made applicable to persons legally responsible for the windingup of companies, whether they arc actually the liquidators or not. That makes someone personally responsible for the payment of the tax, and will effectively combat a rather shady practice which now prevails. The innovation is not entirely in favour of the taxpayer, as it will mean that certain people who have hitherto escaped the payment of taxation will now be liable, but it must be remembered that they were reasonably and justly entitled to pay such taxation.

Next there is the definition of “ partner and partnership “. Representations have been made to me on this matter by some of my constituents, and I think that there is room for a slight modification of the proposals of the Government. Under existing conditions many husband and wife partnerships are formed in order that those concerned may escape liability under the act, and frequently family trusts are brought into being for the same purpose. The amendment is designed to stop such practices. It is true that certain bona fide family trusts may be harshly affected by the new definition in a manner that is not really desired by the Government, and it is there that a modification is desirable. It has been suggested to me that the insertion of the words “ solely or primarily,” after the words “ created “ first occurring, would meet the case. It is also considered by my constitutents that the determination of the Commissioner should not be final, but that provision should be made for appeal. That appears to me to be a reasonable request, one to which I hope the Senate will give its consideration when we reach the committee stage.

Paragraph a of clause 4 is designed to clear up a position which has arisen with regard to the undistributed profits of companies. The principal act provides that tax shall be paid on taxable income derived during the twelve months ended on the 30th June preceding the year for which the assessment is made. The practice of the Commissioner, under the provisions of section 32, has been to accept returns made up to the date of the annual balance of the taxpayer, whether that date is the 30th June or not, and in such returns all references in the act to the year of income have been regarded as referring to the substituted year. The Leader of the Senate referred to the Kellow-Falkiner case. It is as a result of that case that the Government found it necessary to introduce this amendment. It appears to me to be quite all right, and it certainly does not impose any. great additional strain on members of the community. The amendment is designed to meet the special exigencies of the position created by the action of the High Court when interpreting the act. That interpretation was contrary to the intention of Parliament when it passed the original measure, and the amendment will clear up the position and restore to the act the power which it was originally intended to have.

Proposed new sub-section 9 of section 13, which is referred to in clause 4, is very reasonable, and is designed to obviate hardship in the case of taxpayers faced with a permanent prospect of subsisting on a considerably smaller income than they had hitherto received. If such a provision were not introduced taxpayers would be taxed for four years after their deduction of income occurred at a rate ascertained by reference to the higher income derived by them before retirement. Here the act misfired to a certain extent, and a number of people are securing the benefit of the sub-section who are not really entitled to it. The proposed amendment will exclude those people from its benefits. It has been suggested that it merely imposes an additional hardship on the community, because it brings within the purview of the act an additional number of taxpayers. I believe that it is justified, because the original purpose of the act has not been achieved, on account of the decisions of the High Court.

There are a number of other proposals that can be better discussed individually in committee, when we shall be able to concentrate upon them. With the one or two slight exceptions which I have mentioned I support the bill wholeheartedly, because I believe that it will make for the better working of the act and will relieve the Commissioner of a great many difficulties under which he at present labours. It will act harshly upon those who have evaded fair taxation, and it may cause many expert taxation advisers a considerable amount of trouble. Those men have worked up big businesses in all the capital cities of the Commonwealth. By keeping strictly within the law they have been able to find loop-holes in the act, by which means they have enabled their clients to deprive the Commissioner of Taxation of what must be an astonishingly large sum of money. No doubt when this bill becomes law those gentlemen will cast about for new loop-holes in the very amendments which we are now considering, and probably within three or four years it will be necessary again to frame amendments to meet the new conditions. For the present we can block most of the avenues that exist for circumventing the act. I hope that the second reading of this bill will be carried, despite the opposition of certain honorable senators. It will do quite a lot of good, and will re-establish equality of taxation in relation to its application to individuals in the community, according to the precepts of our greatest authorities on political economy.

Sitting suspended from 6.12 to 8 p.m.

Debate (on motion by Senator Crawford) adjourned

page 6867

PUBLIC ACCOUNTS COMMITTEE

Federal Capital Territory: Housing and Building Costs Generally

Senator J. B. HAYES, on behalf of the Chairman of the Joint Committee of Public Accounts, presented the report of the Committee on Housing and Building Costs Generally in the Federal Capital Territory.

page 6867

INCOME TAX ASSESSMENT BILL 1928

Second Reading

Debate resumed.

Senator MacDONALD:
Queensland

– I agree with Senator Needham that a little more time should have been given for the consideration of a bill which contains eleven pages of technical matter, and obviously requires a considerable amount of study. I congratulate Senator Duncan on the information he has been able to give to honorable senators. At first I thought the honorable senator should have been pleading at the bar, because the information he had seemed to be in the nature of a brief.

Senator Duncan:

– The honorable senator thought that at first; has he changed his mind ?

Senator MacDONALD:

– I must reply that my earlier opinion was confirmed as the honorable senator proceeded. In the short space of time this measure has been before the Senate it has been impossible for any honorable senator to acquire all the information that the honorable senator has been in a position to supply. Even the Leader of the Senate in moving the second reading, was content to read his speech, as he could hardly avoid doing with such a technical bill. I am prepared to give the measure general support; but I protest against the proposal to tax mutual insurance companies. I do so because I am opposed to any further penalty being imposed on wage-earners. All insurance companies have as their main object the laudable purpose of assisting people to a greater degree of security in life, but mutual insurance companies representin the best measure possible the finest of all human endeavours - the safeguarding of wives and children against the ills and misfortunes of life. I object, therefore, to the imposition of any further taxation on policy-holders who have entered into engagements with such companies. There is no doubt that the fine buildings that have been erected by these institutions represent a considerable amount of profit. At the same time they represent a considerable asset. They represent also to a very large extent a proportion of the savings of those who have entered into engagements with the companies. Consequently, we should be chary about rushing in to increase the burdens that these people have to carry. The ultimate result of taxing these companies will be to increase premiums and reduce bonuses, or, in other words, to take away from people, who are mostly wage-earners, something that they have acquired by the practice of that thrift which honorable senators opposite so often declare they are extremely anxious to encourage. Senator Duncan has quoted certain economists as having declared that taxation should apply equitably to all classes of the community; but in spite of the opinions of economists, living or dead, the attitude of the Labour party towards taxation is that the burden of it should be placed on the shoulders of those best able to bear it. The taxation of mutual insurance companies will mean placing the burden of taxation on the shoulders of those who are least able to bear it. Senator Duncan did not answer the arguments advanced by the Leader of the Opposition. He admitted that certain people would suffer hardship, but he said that it would not be serious and would not amount to more than a few pence in the £1. I decline to accept the honorable senator as an arbiter in such matters. A few pence in the £1 will amount to a considerable sum over a year. Our policy should be to reduce the taxation on those least able to bear it, and place it on the shoulders of those who have a larger share of the good things of life. But it is evidently the policy of the Commonwealth Government to reduce the taxation of the big people in the community and, as this bill shows, to impose further taxation on the class that is least able to bear it. Taxation on pastoralists has been remitted, and there are many other indications that it is the Government’s policy to reduce the taxation borne by the big people. I object to the pursuit of such a policy, and am opposed to the provision of this bill which imposes a further penalty on wage-earners.

Senator ELLIOTT:
Victoria

.- I regret that the Government has brought down this measure of additional taxation after the pronouncement in the budget that no fresh taxation would be imposed. The position of Australia at the present time, with unemployment everywhere, should have induced the Government to effect some saving in its departments rather than to impose extra taxation. It seems to me that the Government seeks to treat as a criminal, or at least as some one who should be punished, any person who has worked efficiently and earned a profit, while allowing the man who has worked inefficiently and has not made a profit to escape free. Where thrift, ability and energy are discouraged is it any wonder that unemployment is rife? I should like to direct the attention of the Commissioner of Taxation to the following extract from the first anuual report of the Lands Administration Board of Queensland -

Mention should also be made of the principle laid down by the legislature very many years ‘ago that rents should be fixed according to the amount which experienced persons would be willing to pay for land of similar quality in the same neighbourhood. This is sound enough in theory, but, unless great care is exercised, can become very mischievous in its application. Experienced persons are found to pay fancy prices for land, and thereby establish rental values, which, if applied generally to the industry, might be ruinous in their effect. Even at the present time of stress, grazing properties are changing hands at very substantial figures. The prices paid for properties are not always influenced by business considerations alone, but by a great variety of reasons and factors varying with the individual. They are, therefore, at times a very poor guide to correct values.

While it is evident that Labour Governments are acquiring wisdom through experience, Nationalist Governments are departing further from wisdom. The natural result will follow in a few years’ time. Much has been made of the fact that certain companies have escaped taxation because all their profits have been absorbed in the reduction of the indebtedness they had when they commenced operations. It seems to me a great pity that there are so very few actual business men in the Cabinet. Since Mr. Pratten’s decease there is not a single Minister with practical business ability to guide the destinies of the Government.

Senator Reid:

– What about the Prime Minister ?

Senator ELLIOTT:

– The Prime Minister is so far removed from the need for giving close attention to business matters that I- do not think his practical guidance in this respect counts for very much. At any rate, in this and other directions the Government has not been guided by practical commonsense. If it is anxious to remove the causes of unemployment it should proceed most guardedly. When business men see a favorable opportunity to establish an industry they persuade their friends ;to join with them in raising a few thousand pounds and then approach the bank which, if the proposition is a good one, will grant an overdraft. The bank, however, takes the necessary precaution to ensure that for some time practically the whole of the profits shall be used in reducing the overdraft. It is on that basis that industry is founded in this country, but, according to this measure, the taxation authorities look upon such a practice as a crime. Such companies are to be punished by the taxation authorities although those who have, in vested money in them are going without dividends in order to place the business on a proper basis.

Senator Foll:

– This measure has been deliberately framed to give the department full authority to act in cases where persons who, by adopting sharp practices, have been deliberately avoiding taxation.

Senator ELLIOTT:

– It provides for more than that. Australia is a new country in which we should encourage the investment of capital in industry and thus assist in relieving unemployment. When a combination of persons raises sufficientcapital to start in business the banks will advance money; but they are always anxious that the capital shall be repaid as early as possible. For some amazing reason the Government now submits proposals which will interfere with such industrial concerns.

Senator Reid:

– It is proposed to tax only the profits.

Senator ELLIOTT:

– Unless the bank is offered sufficient security it will not grant an overdraft. The transport service at Canberra is losing over £4,000 a year, but I venture to say that if it were in the hands of private enterprise it would be showing a profit.

Senator Foll:

– Private enterprise had an opportunity and would not touch it.

Senator ELLIOTT:

– The terms embodied in the form of tender were of such a nature that no one would touch the proposition with a 40-foot pole.

Senator Cox:

– There was nothing objectionable in the conditions of tender.

Senator ELLIOTT:

– The honorable senator, who is not conversant with even one of the conditions of the tender, is talking absolute nonsense. It is from such honorable senators that the Government obtains its support in stifling industry in this country.

Senator Verran:

– The object of the bill is to give the department power to deal with those who are evading taxation.

Senator ELLIOTT:

– It does more than that, and will seriously hamper industry in the direction I have suggested.

Senator Herbert Hays:

– Why should it do so?

Senator ELLIOTT:

– Because the profits of many industries have to be devoted to liquidating overdrafts.

Senator Herbert Hays:

– There would not be any profits while there was an overdraft.

Senator Duncan:

– Would the honorable senator give preference to a company working an overdraft over one which was working on paid-up capital?

Senator ELLIOTT:

– Yes, because it is only in that way that new industries can be established. If we wish to assist industry and reduce unemployment to a minimum we .cannot impose taxation on a theoretical basis.

Senator Duncan:

– If companies could all carry on with an overdraft, and so escape income tax, they would not feel disposed to use their own capital.

Senator ELLIOTT:

– Companies carry on with an overdraft only when they cannot avoid doing so.

Senator Cox:

– The honorable senator suggests that the banks would finance a man if he had only a shilling.

Senator ELLIOTT:

– They would if he was of the right type and could show that with the assistance of sufficient capital he could make good. I was personally acquainted with a returned soldier possessing complete knowledge of his particular line of business, and who was financed by a financial concern to the extent of £70,000, although he practically did not possess a penny.

Senator Cox:

– I wish they would give me similar consideration.

Senator ELLIOTT:

– If their representatives heard the inane remarks of the honorable senator to-night, they would not trust him with a shilling. It was not long before the man of whom I am speaking was showing a profit of £10,000 a year, and employing 200 “diggers.” The bank realized that the man was worth assisting.

Senator Foll:

– If he were showing a profit of £10,000, should he not pay taxation until his overdraft was wiped off ?

Senator ELLIOTT:

– If industry is to be encouraged the department must not be too severe.

Senator Foll:

– He could have invested his capital and got an overdraft from the bank as the honorable senator suggests.

Senator ELLIOTT:

– Hundreds of persons are doing that to-day. All profits are not used in reducing overdrafts. Some honorable senators think that it is a crime to establish industry.

Senator Foll:

– That is a stupid statement.

Senator ELLIOTT:

– That is the honorable senator’s argument.

SenatorReid. - Many businesses operating on a sound basis are working on overdrafts.

Senator ELLIOTT:

– Every one cannot get an overdraft from the bank. The man who was making a profit of £10,000 a year, worked himself to death, and no one could be found with the knowledge necessary to carry on the business, with the result that 200 men were thrown out of employment. The next best man available said that he could purchase the raw material and manufacture the goods, but he could not place them on. the overseas market.

Senator Duncan:

– How much would it cost the department to exempt from taxation all firms that are working on overdrafts?

Senator ELLIOTT:

– The honorable senator is viewing the subject from a wrong aspect. These companies are at present enjoying a partial exemption. I was hoping that the Government would entirely vacate the field of direct taxation; but it seems that it. is engaging in it more extensively than ever, and hopes to gather in these companies by means of a drag-net clause quite regardless of the fact that these companies have bound themselves rigidly to use all their profits to liquidate their overdrafts.

Senator Verran:

– Why should some persons escape taxation?

Senator ELLIOTT:

– If we wish to encourage industry and dispense with unemployment, we must see that the taxation imposed is as light as possible.

Senator Herbert Hays:

– The honorable senator is advocating a remission of taxation.

Senator ELLIOTT:

– No, I am hoping that the bill will be rejected.

The PRESIDENT (Senator the Hon. Sir John Newlands). - I ask honorable senators to allow Senator Elliott to proceed without further interruption.

Senator ELLIOTT:

– I commend honorable senators to the paragraph which I have quoted, and to remember that theory can be applied to such an extent that industry may be ruined.

It is regrettable to find that the Taxation Department is now casting envious eyes on life assurance companies. There does not appear to be any valid reason why non-mutual companies should evade their just share of taxation ; but mutual companies whose profits are returned to the policy holders, in the form of bonuses, should not be penalized. The proposals of the Government will have the effect of throwing an additional burden upon a very deserving and thrifty section of the community. I oppose the bill.

Senator Sir GEORGE PEARCE:
Western Australia · NAT

– Vice-President of the Executive Council) [8.28]. - I wish to comment very briefly upon the remarks of those who have objected to the provision of the taxation of life assurance companies. One would think, from the remarks of some honorable senators, that this bill contained a new principle in the matter of Commonwealth taxation, and that these life assurance companies had always escaped taxation. As a matter of fact, they are taxed in every State.

Senator Elliott:

– And the Government is duplicating that tax.

Senator Sir GEORGE PEARCE:

– No. The following are the bases of State taxation of life assurance companies : -

New South Wales - Income from real property mortgages, less proportion of total expenses in New South Wales obtained by using ratio of taxable income to total income.

Victoria - Thirty per cent. of “ premium income “ (ordinary department);15 per cent. of “premium income” (industrial department).

South Australia - Portion of the surplus divisible amongst policy-holders which the Actuary certifies to be attributable to South Australia.

Tasmania - Twenty per cent. of “ premiums received.”

Queensland - Twenty-five per cent. of “ premiums collected during the year” (ordinary department ) ; 15 per cent. of “ premiums collected during the year” (industrial department).

Western Australia - “ Interest on investments,” less a deduction for expenses.

Senator Robinson:

– Is that an argument why the Commonwealth should also impose this form of taxation?

Senator Sir GEORGE PEARCE:

– It is a reason why they should bear their share of Commonwealth taxation. One would think, from the remarks of the Leader of the Opposition (Senator Needham) and Senator MacDonald, that the Labour party is opposed to this form of taxation ; but in Queensland, where there is a Labour Government and only one House of Parliament, they have allowed this form of taxation to remain in operation.

I could myself make a most vigorous denunciation of all forms of taxation. No Government imposes taxation because it is a popular thing to do. On the contrary, it is a most unpopular course for any Government to take. I can assure honorable senators, therefore, that in imposing this taxation the Government is not seeking popularity. It is doing so because it considers that the burden, which must be borne by the people of Australia if this country is to meet its liabilities, should be spread as equally as possible over all sections of the community. Some honorable senators have spoken as if the bill is designed merely for the purpose of imposing taxation. It is not. What is happening is this. Certain industrious persons appear to be applying their industry and intelligence in a way not indicated by Senator Elliott. By the adoption of various ingenious methods they are escaping taxation which other people with similar incomes have been paying all along and will be expected to pay in future. We take the view that since taxation has to be imposed, we should be fair and call on people with similar incomes to bear an equal share of the tax.

The bill is attempting to do that. Certain people have been evading taxation and this bill is, for the most part, an attempt to make them bear their fair share. Senator Elliott also said some extraordinary things about the Government’s proposals. In this matter he was most unjust, because the record of this Government in regard to taxation n eds noapologist. Notwithstanding that our liabilities arising out of the war - the interest on our war debt and the sum required for the payment of war pensions and repatriation - are higher to-day than at any time since the war, this Government has beeen responsible for successive reductions in the rate of income taxation. In addition, it has brought about a reduction in the total amount paid by about one-third. It has introduced amendments to the act, granting exemptions from taxation that have benefited particularly our primary producers. It has allowed exemptions of all kinds and has provided for losses, equalization of profits and the averaging of incomes. All these things, which have been of immense benefit to the people, have been done in the life of this Government, so it is most unjust for any honorable senator to try to make it appear that the Government is using taxation as a vindictive measure.

I come now to an examination of the one constructive piece of criticism by Senator Elliott. The honorable senator argues that if a company is working on its own capital and makes a profit, it should be taxed on that profit; but that if another company is working on borrowed capital and uses its profits to pay off its loan obligations, it should not be taxed. Let us examine the position of these two companies and see where this would lead us. Let us assume that company “ A “ issues shares of £1 each, calls up 5s. per share. and borrows 15s. a share. To all intents and purposes it has a working capital of 20s. a share. Let us assume also that company “ B “ has a share capital bona fide paid up to 20s. a share. As regards the actual working capital the two companies are in identically the same position. Let us assume further that each company makes a profit of £10,000. Under this bill both will be taxed alike on the amount of profit earned. Under Senator Elliott’s proposal the company with a paid-up capital of 20s. per share would be taxed on the full amount of profit earned, but the company which had risked only 5s. of its shareholders’ capital and provided the other 15s. per share by means of an overdraft or some other means, and used its profits to redeem its borrowed capital, would escape taxation altogether.

Senator Elliott:

– That is the position under the present system.

Senator Sir GEORGE PEARCE:

– And this bill proposes to alter it. Surely it is obvious that if the company which had borrowed 15s. a share utilized its profit of £10,000 to reduce its loan liability, its shares would actually be worth 20s, although the shareholders had paid up only 5s. a share. In every respect its shares would be equal in value to the shares in the other company, the shareholders of which had found the whole of the capital.

Senator Elliott:

– The following year both companies would be on an equality.

Senator Sir GEORGE PEARCE:

– It is only necessary to state the position to show how inequitable is the proposal put up by Senator Elliott. If a company could escape taxation in this way it would be encouraged to continue to work on borrowed money.

Senator Robinson:

– It would be taxed on its gross capital.

Senator Sir GEORGE PEARCE:

– It would not be so taxed, because if its profit were employed to repay its loan obligations such profit would lot be regarded as income, though in every respect the value of its shares would be equal to the fully paid-up shares in Company A.

Senator Robinson:

– It would be taxed on its income the following year.

Senator Sir GEORGE PEARCE.What guarantee is there that there would be taxable income in the following year? If the directors of the company were astute enough they would, in the following year, negotiate another loan to increase the company’s capital and continue to utilize its profits to pay off its liabilities. This steady accretion in the value of shares is just as good as dividends paid on shares. If I were a shareholder in a company and had paid up only 5s. a share, and if the company utilized its profits to pay off its liabilities, there would be an accretion in the value of my shares equal to the reduction in the amount of the share liability. It would make no difference to me if I got 15s. in the way of dividends or whether I got it in increased share value. Consequently all companies should be in the same position as regards income taxation. That is what the bill proposes to do.

Some honorable senators appear to think that the Commonwealth has abounding revenues, and that there is no necessity to tighten up our taxation machinery. One has only to look at the budget to realize that this is not the case. The bill is an attempt to avoid the necessity for imposing new taxation. Two courses are open to the Government, namely, to increase the general rate of income tax, or to stop the leaks in the present system, so as to make the taxation burden fall equitably upon the people, and especially to see that those who are liable to taxation, but. at present escape, shall bear their share along with their fellow taxpayers. There are some who argue that the Commonwealth should not be in this field of taxation at all. The Commonwealth, by reason of its war liabilities, was forced to impose income taxation on the people. I hope that the committee will agree to the second reading of the bill.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 to 3 agreed to.

Clause 4 (Income tax).

Senator ELLIOTT:
Victoria

.- I should like to have an explanation from the Minister as what this clause means.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the Executive Council) [8.43]. - The object of the proposed new sub-section is to obviate hardship in the class of case in which a taxpayer, owing to force of circumstances, such as retirement from business or from his office or other occupation, is faced with the permanent prospect of subsisting on a considerably smaller income than that which he has been accustomed to receive. Without it, such a taxpayer would be taxed for four years after his retirement, &c, at a rate ascertained by reference to the higher income derived by him before retirement. The experience of the department has shown that the sub-section, in its present form, is applicable to a class of case for which the benefits of the provision were not intended, namely, the class of case in which a taxpayer who continues in his business or occupation and suffers no depletion of his usual sources of income, but derives income from some unexpected or unusual source, in a particular year, in addition to his usual income, with the result that the income of the year immediately succeeding the year in which he received the additional income is less than two-thirds of his average income, by reason merely of the receipt of the additional income, which has to be brought into account in calculating the average. The proposed amendment is designed to exclude that class of case from the benefits of the sub-section.

Senator ELLIOTT:
Victoria

– The Minister has not said anything about the proviso to paragraph a, which reads -

Provided that in the case of a person whose income cannot be conveniently returned as for the year fixed by this act and from whom the Commissioner has, under section 32 of this act, accepted returns made up for an accounting period substituted for that year, income tax shall be levied and paid for the financial year upon the taxable income derived by that person during that accounting period.

I cannot follow the meaning of that proviso.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the

Executive Council) [8.45]. - I was dealing with the latter part of the proposed new section. The other portion of it I dealt with in my second-reading speech, when I pointed out that companies do not always close their year on the 30th June.

Senator Duncan:

– The Commissioner did not regard that as mandatory; but the court ruled otherwise.

Senator Sir GEORGE PEARCE:

– The decision of the court has hampered the Commissioner, in that it has prevented him from accepting returns for accounting period ending on dates other than the 30th June.

Clause agreed to.

Clause 5 -

Section 14 of the principal act is amended by omitting from paragraph (l) of sub-section ( 1 ) the word “ residing “ and inserting in its stead the word “ domiciled “.

Section proposed to be amended -

– ( 1 ) The following incomes, revenues and funds shall be exempt from income tax: -

the remuneration paid by the Government of the Commonwealth or of a State to a person residing outside Australia for expert advice to that Government or as a member of a Royal Commission;

Senator J B HAYES:
Tasmania

– On behalf of Senator Kingsmill, who is unavoidably absent, I move -

That after the word “ amended “ the word “ (a) “ be inserted.

If this is agreed to, I shall then move a further amendment, of which notice has been given by Senator Kingsmill, and of which this is really part, to relieve bona fide prospectors for gold and those who give them financial backing. I agree with the amendment which has been circulated by Senator Kingsmill, although I cannot see why minerals other than gold are not included. Prospectors frequently spend a number of years in the bush before obtaining a prize in the form of a valuable mineral deposit. When they meet with success their reward is taxed as income for that year, whereas in reality it is the reward of many years’ work. The amendment, if agreed to, will exempt from taxation income so derived by them. It, therefore, has my support. Moreover, it includes in its scope any person who has assisted the prospector by providing him with funds to carry on his search for minerals. Men with relatively small incomes sometimes combine to keep prospectors in the field-; they are as much entitled to consideration as is the prospector himself.

Senator Sir GEORGE PEARCE:
Vice-President of the Executive Council · Western Australia · NAT

[8.50]. - The Government is willing to accept the amendment. When the Income Tax Assessment Bill was before Parliament on a previous occasion provision was made to assist the gold-mining industry. It was thought then that that legislation was sufficient to achieve our purpose, but it has since been found to be inadequate. The amendment is designed to relieve bona fide prospectors and those who assist them financially, and to remove the doubt which existed regarding the position of the latter.

Amendment agreed to.

Senator J B HAYES:
Tasmania

– On behalf of Senator Kingsmill I now move the further amendment to which I have just referred, namely -

That after the word “ domiciled “ the follow- . ing words be inserted: - and (b) by inserting at the end of subsection ( 1. ) the following paragraph : -

Income derived by a bona fide prospector from the sale, transfer or assignment by him of his rights to mine for gold in a parti cular area.

For the purpose of this paragraph “bona fide prospector” means a person who has personally carried out the whole or major part of the field work of prospecting for gold in the particular area and includes any person, other than a company, who has contributed to the expenditure incurred in the work of prospecting and development in that area.

Senator OGDEN:
Tasmania

.- Why is this relief not to be extended to prospectors for minerals other than gold? I see no reason why prospectors for copper, silver, tin or other minerals should not be treated as we treat those who search for gold.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the Executive Council) [8.53]. - The reason for the differentiation is that the goldmining industry is different from other mining industries, in that every mineral excepting gold has appreciated in value since the war. Whereas the cost of production in the gold-mining industry has increased proportionately with the costs in other mining industries the price of gold has not increased. The result of this differentiation is seen in the decline of the gold-mining industry in this country. Last year the legislation was amended because it was thought proper to encourage the gold-mining industry to compensate it in some way for the disadvantage I have mentioned. Many gold mines are not working to-day, not because the gold content is not just as good as it was previously, but because the higher cost of production makes them unprofitable.

Senator OGDEN:
Tasmania

– I do not entirely agree with the Minister. If a man makes no profit he will pay no income tax. Whether the price of gold is £4 or £4 17s. 6d. an ounce matters very little, if he cannot win enough gold to make a profit. The discovery of tin, copper or some other mineral may be an even greater asset to the country from an industrial stand-point than would be the discovery of gold. While I do not desire to move an amendment to cover other minerals I ask the Minister to agree to prospectors for such minerals being treated in the same way that prospectors for gold are dealt with in this amendment. Such consideration, while benefiting them, would not mean a great deal to the Taxation Department. I object to discriminating between men who prospect for gold and others who search for other metals.

Senator DUNCAN:
New South Wales

– I should like to be sure that the amendment provides sufficient safeguards, not so much for the bona fide prospector as for the Consolidated Revenue. A man who discovers a highly profitable area might sell his rights in it for a cash consideration, but under this amendment he would not be called upon to pay income tax on that reward. Or he might retain an interest in the company which takes over the mine, and so long as the company made a profit he would be in receipt of an income which would not be liable to taxation.

Senator Verran:

– In that case he would no longer be a prospector.

Senator DUNCAN:

– He would be covered by the amendment, because his holding in the company would be a part of the consideration received by him for finding the mine.

Senator Verran:

– It would apply only while he was prospecting.

Senator DUNCAN:

– I do not think so. The proposed new paragraph (o) reads -

Income derived by a bona fide prospector from the sale, transfer or assignment by him ofhis rights to mine for gold in a particular area. . . .

He may assign to a company his rights to mine for gold.

Senator Reid:

– He then ceases to be a prospector.

Senator DUNCAN:

– But he would be a prospector when he assigned his rights, in which case his freedom from taxation would continue.

Senator Sir George Pearce:

– The principal act exempts him from taxation for an indefinite period.

Senator DUNCAN:

– A man might discover another Broken Hil and receive a large annual income for many years, but he would be exempt from taxation.

Senator Verran:

– Would the company or the man draw the income?

Senator DUNCAN:

– If a part of the consideration paid to the prospector was a holding in the company, it would follow that so long as the company made a profit he would derive income from that source. But that income would not be liable to taxation. I desire to assist the prospectors, but when a prospector gives up prospecting and becomes what honorable senators opposite call a capitalist he should be liable to taxation on his income. The source of his income is not his because he found the mine ; like other natural resources of the country it belongs to the people. Income derived therefrom should be liable to taxation.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the Executive-Council) [8.59] . - Honorable senators are suffering from short memories. In 1924 we amended section 14 of the principal act which provides for the exemption of certain incomes as follows : -

  1. By inserting after paragraph (1) of subsection ( 1 ) thereof the following paragraph : - “(la) the income derived by a person from the working of a mining pro perty in Australia principally for the purpose of obtaining gold, or gold . and copper, provided that in this case the output of gold shall not be less than 40 per centum of the total value of the output of the mine - this exemption shall extend to dividends paid by a company out of such income; and “.

That provision was inserted in the legislation, because of the languishing condition of the gold-mining industry. It was “ an attempt to assist that industry by exempting it from taxation. There is not much likelihood, with the present state of the gold-mining industry in Australia, of any speculation in the industry being involved in this taxation. The amendment is introduced to apply to the prospector, who, if he retains an interest in a mine and becomes a shareholder, obtains exemption under the principal act, which has been in existence for a number of years.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 6 agreed to.

Clause 7 -

After section 16a of the principal act the following sections are inserted: - “ 16c. Where a taxpayer claims that -

  1. by reason of the manufacture, pro duction or purchase of goods in one country and their sale in another;
  2. by reason of successive steps of production or manufacture in different countries; or
  3. by reason of the making of contracts in one country and their perfor mance in another, or for any other reason whatever, income is derived partly from sources outside Australia, the question whether any, and if so what part, of the income is derived from sources outside Australia shall be determined in accordance with the regulations, or, if there is no regulation applying to the case, shall be determined by the Commissioner, whose determination shall not be subject to objection.”.
Senator ELLIOTT:
Victoria

.- I should like some explanation of this clause.

Senator Sir GEORGE PEARCE:
Vice-President of the Executive Council · Western Australia · NAT

[9.2]. - If Senator Elliott will tell me precisely what information he desires I shall endeavour to give it. I gave a full explanation of the clause in my second-reading speech, and it would be simply wasting time for me to repeat in committee what I then said.

Senator DUNCAN:
New South Wales

– Representations have been made to me from some of my constituents that the provisions of proposed new section 16c confer too much power on the Commissioner. Through his interpretation of this matter the Commissioner has, on several occasions, been engaged in court proceedings in his official capacity, with disastrous results to himself. Mr. Justice Starke, in the case of the Commissioner of ‘Taxation v. Berger, which is reported in 39 C.L.R., 471, severely criticized the Commissioner, and referred the whole matter back to him for further consideration. The final words of the proposed new section read - if there is no regulation applying to the case, shall be determined by the Commissioner whose determination shall not be subject to objection.

That is too comprehensive a power. When regulations are provided for the effective working of an act they have to run the gamut of Parliament, and it is open to us at any time to object to them if they harshly affect the people of Australia. In this instance, the Commissioner may decide the point at issue and hi3 determination cannot be challenged. The remarks of Mr. Justice Starke make it apparent that it is unwise to cast too great a responsibility upon the Commissioner. It is but fair that Parliament should shoulder the responsibility in these matters, and it would be only just if we drafted the regulations necessary for this or any other clause and had them incorporated in the act. The Commissioner could not then be held personally responsible for the result. It would be the duty of Parliament to see that the act was observed in accordance with its wishes, and also to see that its official was protected. I consider that the objections which have been raised should be answered, as I foresee that very grave difficulties may arise in the future from a decision of the Commissioner that may not be strictly in accordance with the meaning of the act.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the Executive Council) [9.6]. - Proposed new section 16o deals with income derived from operations carried on in more than one country. The proposed section is intended to preserve the present practice of the Commissioner, and not to make any’ alteration in the principles that bave hitherto applied. It is necessary to read the records of two law suits that have occurred in this connexion ; Berger’s case, which is reported in 39 Commonwealth Law Reports 468, and Mitchell’s case which is reported in Australian Law Reports 25. In Berger’s case, an Australian manufacturer of paint filled orders sent from New Zealand, but the bulk of his business was in Australia. In Mitchell’s case the business was that of buying wool and skins in Australia and of selling them overseas, some in the raw state, and some after treatment and manufacture in Australia. The business was controlled in Australia. In Berger’s case it was held that the profits derived from sales in New Zealand of goods manufactured in Australia, should be allotted between Australia and New Zealand upon a fifty-fifty basis, and in the Mitchell case it was held that the whole income should be apportioned between Australia and the sources outside Australia upon a fifty-fifty basis. The question with which the proposed new section deals, arises in the case of all importation of goods and all exportation of goods. No legislature has hitherto been able to lay down a rule which will apply to all such cases. The decisions in the cases mentioned, and in Kirk’s case, 1900 A.C., illustrate the impossibility of laying down any general rule, and the uncertainty which must result if it is left’ for every case to be fought out in the courts. A very large amount of revenue would be lost if it were held that half of the profits of firms and companies which imported goods into Australia and sold them here were made abroad; or again if it were .held that half the profits of exporters of Australian goods were made abroad. In the latter case it is practically certain that the exporters would find themselves liable to income tax in the countries to which their goods were exported, and if the goods were exported to England, taxation would be at a higher rate than that applicable in Australia. The reason why it is proposed, subject to regulation, to let the Commissioner determine these cases on the same principles as have been applied without any substantial objection in the past, can be readily understood from an examination of the decisions of the Board of Review in Berger’s and Mitchell’s cases. If the change is not made and if the Board of Review and the courts determine future cases with similar results to those reached in Berger’s and Mitchell’s cases, the loss of revenue will be so great that it will be necessary to increase the rate upon all persons deriving income from exclusively Australian sources. That would be very undesirable and unjust. Certain cases may arise for which regulations may be framed, but those regulations must vary to meet the different classes of cases. In addition, there will be some cases that cannot be foreseen and for which no regulations are framed. In such cases it will be left to the Commissioner to determine the basis upon which taxation will be imposed. It is impossible to lay down a general rule of a 50-50 or 75-25 basis for all cases. That is the reason why this elasticity is allowed.

Senator ELLIOTT:
Victoria

– I move -

That all words after the word “ regulations “, proposed new section 16c, be left out.

Things are coming to a very pretty pass in this Parliament. A Minister is given power to make ordinances, which are laid on the table of the House in a purely perfunctory manner. Honorable senators appear to be willing to swallow almost everything that the Minister wishes to give them. Time and again the very objectionable practice has arisen of putting the outline of a bill through Parliament and delegating to the Minister power to clothe the skeleton with the substantive matters. Later an ordinance supplying important missing details is laid upon the table, and in 99 cases out of 100 it is not read. A still more objectionable practice has crept in, in regard to the Federal Capital Commission, of introducing ordinances framed in a general way, and delegating power to the Minister and to the commissioners to make regulations which will have the force of law under the new ordinance. Such regulations are not subject to review by this House. In this case the Commissioner of Taxation, where he has not troubled to make regulations, may issue arbitrary determinations which cannot be challenged. I am not prepared to delegate our powers to a commissioner who is not responsible to us, and from whose determination there is absolutely no appeal. Are we to barter away the whole of our legislation to a mere bureaucrat?

Senator Sir George Pearce:

– New Zealand has had to legislate along similar lines.

Senator ELLIOTT:

– It is a very dangerous practice. Where are we to stop ? Are we simply to come here transfer all our powers to a commissioner, and then walk out? Are we to bring into an existence . a Mussolini, over whom nobody has any control? That is the effect of this amendment, as will be apparent to anybody who takes the trouble to read the wording of the proposed new section.

Senator NEEDHAM:
Western Australia

– While I am not prepared to go as far as Senator Elliott. I agree that this provision requires amending. I should like to see eliminated from the proposed new section the words “ whose determination shall not be subject to objection “, which occur after the word “ commissioner “. It is quite possible that the Commissioner may be called upon to make a determination upon a matter when he has no regulation to guide him. I realize the impossibility of drafting regulations to meet all conceivable circumstances, but at the same time I have no desire to place the determinations of the Commissioner of Taxation in the category of the laws of the Medes and Persians. I do not believe that the Commissioner would wilfully come to an unjust decision, but the taxpayer may regard it as unjust and he should have the same right to appeal under this clause as is given under other clauses. I suggest to Senator Elliott that he should move to eliminate the words “whose determination shall not be subject to objection “. If he does so he will be going a long way towards protecting the taxpayer.

Senator ROBINSON:
South Australia

– I am in agreement with honorable senators who are desirous of deleting the words “whose determination shall not be subject to objection “. I can speak feelingly because, from my experience, Commissioners of Taxation are very prone to make mistakes, sometimes with disastrous effects to the taxpayer. Some years ago as the result of selling certain property and acquiring other property, I was assessed by the Commissioner of Taxes in South Australia on the basis of having made myself liable for £463 income tax. I contended that my profit represented an accretion of capital and that as such it was not taxable, and my interpretation was subsequently upheld by the court. I am, therefore, strongly opposed to the insertion of any provision in a taxation measure which prevents the taxpayer from taking objection to the decision of the Commissioner of Taxation. It is the anxiety of Commissioners of Taxation to obtain revenue for the Government and it is quite natural for them to become obsessed with their powers. There should, therefore, be some appeal from their determinations.

Senator Reid:

– This provision will not prevent an appeal to the courts.

Senator ROBINSON:

– Why should the taxpayer be forced ‘to drag the Commissioner of Taxation into the courts to teach him how to interpret properly his own act? Some more sensible and certainly more expeditious means of settling the matter should be adopted. The case in which I secured a decision in my favour cost me £400, but the court in its wisdom would not allow me more than £5 costs. Nevertheless, I had the satisfaction of relieving many other taxpayers in South Australia of the necessity of paying what I was being asked to pay. My experience makes me all the more anxious to see that an appeal is allowed from the determination of the Commissioner in all spheres of his activities. I am opposed to legislation of a retrospective character; because it is unfair, and contrary to the fundamental principles of British justice. I trust that the clause will be so amended that an inexpensive method of checking mistakes made by the Commissioner of Taxation in the administration of the law, may be adopted.

Senator Sir GEORGE PEARCE (Western Australia - Vice-President of the Executive Council) [9.21]. - As the provision in the bill is not retrospective I cannot understand the honorable senator’s last reference. Furthermore, the case in which he was concerned has no bearing. Even if the clause were agreed to as printed, a case such as his could still be taken, into court.

Senator Robinson:

– But why should a taxpayer be forced into court?

Senator Sir GEORGE PEARCE.The Government is anxious to save the taxpayer from the necessity of having to go to court. In regard to exports and imports the Commissioner already allots the liability of the taxpayer and of hundreds and possibly thousands of the decisions he has made, only two have been challenged in the courts. In these cases the courts laid down certain rules which apply to these cases only. If they were applied to all cases the loss of revenue would be such that the rate of the income tax would need to be increased. The Government is, therefore, proposing a new method of handling these cases. A regulation will be made applying generally to all cases, and laid on the table of the Senate, to form the basis on which profits derived from exports and imports will be taxed. But exceptional cases are encountered now and again that, because of their peculiar circumstances, which remain unknown until they are disclosed to the Commissioner in the return forwarded to him, cannot be covered by any existing regulation. When this happens the Commissioner comes to a determination as to the right apportionment of tax to be paid. At present there is every opportunity for litigation whenever the Commissioner comes to such a determination, and, if honorable senators are anxious to have litigation, let them leave the matter open, because then no one will know just what proportion of tax should be allocated. But the Government considers that such a position is unsatisfactory. It says that as far as possible regulations shall be made covering all known cases and apportioning the rates of tax, but that the occasional cases which crop up, the circumstances of which differ from any known case, and are not covered by any existing regulation, should be left to the determination of the Commissioner, who will be guided by the principles laid down in the regulations so far as they apply.

Senator Needham:

– But why should his determination be final?

Senator Sir GEORGE PEARCE.For the sake of avoiding litigation. The Commissioner is not likely to depart from the principles laid down in the law and in the regulations, except when he has to meet peculiar cases that crop up once in a blue moon. The New Zealand law was the same as our law, and when the dominion encountered the difficulty which this provision of the bill is designed to overcome, it met it in almost the same way us is now proposed in this bill. We have followed almost, verbatim the wording of the New Zealand law, which provides that ordinary cases shall be met. by regulation, and that exceptional cases sim 1 1 bp subject to the determination of the Commissioner.

Senator HERBERT HAYS:
Tasmania

– The Leader of the Senate has made it clear that the provision in the bill under discussion is designed to deal with a particular set of circumstances which could not reasonably be governed by regulations, but my main objection to the clause is that the taxpayer is deprived of his right of appeal. If the Commissioner is guided by his regulations, he is less liable to make a mistake than he would he if matters were left solely to his discretion, but when he is left to his own discretion in dealing with exceptional circumstances which are not covered by regulation, the taxpayer may suffer a great injustice. T can understand the determination of the Commissioner being binding where the case with which he is dealing is so- ..r”ea by some regulation, but in the absence of such a regulation, there should be an anneal from the assessment made by him.

Senator ABBOTT:
New South Wales

– In many countries it is the practice to tax income earned outside the particular country in which the taxpayer resides, but. I understand that the Commonwealth Government is anxious to avoid the taxation of income earned beyond the Commonwealth. I agree with many honorable senators that the Commissioner should not be given arbitrary power to tax in every case, but Senator Pearce has shown clearly that there is great difficulty in providing regulations to den 1” with every individual case that may arise.

Senator Needham:

– That is admitted.

Senator ABBOTT:

– Two cases have been decided by the courts, and in future the decisions given in those cases will guide the Commissioner. But cases in which the circumstances differ from those upon which the court has given its decision will have to be viewed from a different stand-point. How can we provide regulations to deal with them? In cases such as those mentioned, I do not think we shall be running any risk. We would be in a very much worseposition if the Government were introducing legislation, such as is in operation in other parts of the world, under which taxation is levied on ex-Australian incomes. The tax will be imposed only on income derived in Australia. I have been endeavouring to determine how a regulation could be framed to meet all cases.

Senator Sib George Pearce:

– These cases can be covered by regulation in most instances, but not in all.

Senator ABBOTT:

– In the absence of this provision, the department is losing a considerable amount of revenue, and as a similar law has been in operation in New Zealand for a considerable time, without inflicting any hardship, I think the committee should oppose the amendment moved by Senator Elliott, and allow the clause to pass in its present form.

Senator ELLIOTT:
Victoria

.- In view of the opinions expressed by the Leader of the Opposition (Senator Needham) and Senator Robinson, I ask leave to withdraw my amendment, with the object of submitting it in another form.

Amendment, by leave, withdrawn.

Senator ELLIOTT:
Victoria

.- I move -

That the words “ whose determination shall not be subject to objection,” proposed new section Kie, be left out.

If those words are deleted, the Commissioner’s determination may then be subject to objection.

Question - That the words proposed to be left out be left out - put. The committee divided.

AYES: 10

NOES: 9

Majority . . 1

AYES

NOES

Question so resolved in the affirmative.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 8 -

Section twenty of the principal act is amended -

by inserting after sub-section (4.) the following sub-section: - “ (4a.) Where the whole or any part of the sum or further sum in respect of which a company has paid or is liable to pay tax under section twenty-one of this act is distributed to its members or shareholders, a member or shareholder who isa taxpayer shall be entitled to a rebate of the amount by which his income tax is increased by reason of the inclusion in his assessable income of the amount so distributed to him “ ; and

by omitting sub-section (5), and inserting in its stead the following sub-section: - “ (5) For the purpose of ascertaining the taxable income of a company the principal business of which is life insurance, there shall be excluded from the assessment the following amounts -

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

the part of the expenditure incurred in the general management of the business of the company (but not including any expenditure exclusively incurred in gaining or producing the income included in the assessment) which bears to that expenditure the proportion which the sum of the premiums, consideration, and income mentioned in paragraph (a) of this sub-section bears to the total income of the company derived from any source whether in or outside Australia.

Senator NEEDHAM:
Western Australia

– I move-

That all the words after “ him “ at the end of proposed new sub-section (4a.) be left out.

The Minister, in replying to the secondreading debate endeavoured to defend a tax on life assurance companies, because a similar tax is imposed in some of the States. If the state of the revenue necessitated increased taxation, I could understand the imposition of taxation on comparatively low incomes ; but although the Government do not wish to directly impose that form of taxation it is doing so in an indirect way. According to the Treasurer there are 225,000 income tax taxpayers in the Commonwealth to-day; but if this clause is adopted approximately 2,000,000 additional taxpayers will be brought within the scope of the bill.

Senator Ogden:

– The tax will not be imposed upon the individuals.

Senator NEEDHAM:

– Their bonuses will be taxed. Since speaking this afternoon I have been reliably informed that 85 per cent. of the life assurance companies in Australia are operating upon a mutual basis.

Senator Duncan:

– I doubt if the percentage is so high in relation to purely Australian companies, but what of the overseas companies?

Senator NEEDHAM:

– As this tax will undoubtedly have to be met by men receiving the basic wage, I ask the Minister to reconsider his decision, instead of asking the committee to adopt the clause.

Senator Robinson:

– Why penalize those who are making some provision to assist their dependants, and at the same time introducea national insurance scheme ?

Senator NEEDHAM:

– That is a point which perhaps the Minister can answer. It seems a most unreasonable proposal.

Senator Verran:

– To what extent will a policy-holder be taxed?

Senator NEEDHAM:

– I do not know the amount; but the Government propose raising by this means an additional £300,000 a year, most of which will come from the pockets of the wage-earners. The Minister, in replying to Senator Elliott, referred to the extent to which the Government had reduced taxation. He did not, however, explain to the committee that the reductions made had been for the benefit of those receiving £3,000 a year and over, and that those on much lower incomes had not received any consideration. The Government, which is faced with a deficit of £2,600,000, is endeavouring to meet its obligations by collecting taxation from those who can least afford to pay it. I shall not stress the matter further as I emphasized it in the second-reading debate.

Senator Sir GEORGE PEARCE:
Vice-President of the Executive Council · Western Australia · NAT

[9.46]. - I appeal to the committee not to support, in a spirit of recklessness, the Leader of the Opposition. I recognize that he is entitled to try to embarrass the Government, but I would point out to honorable senators that this is one of the vital points in the budget. If this portion of the Government’s taxation proposals is struck out, the consequences will be very serious.

Senator Needham:

– The whip is cracking.

Senator Sir GEORGE PEARCE:

– I am not making this statement in any light spirit, nor by way of threat. All I am doing is to appeal to honorable senators on this side to realize that they have some responsibility with regard to the financial proposals of the Government. This amendment, I repeat, touches a very vital principle. I listened to some of the fustian - I can give it no other name - used by the Leader of the Opposition. He talked at large about this proposal being equivalent to the taxation of the workers, and other rubbish of that kind. As a matter of fact, the small policy-holders in insurance societies represent a very small percentage indeed of the total.’ We may assume that the majority of individual policy-holders are workers, .but their premium payments are only a small percentage of the total business of such companies. As a matter of fact, it is not proposed to tax the premium income. That is, and always has been, exempt from taxation.

Senator Robinson:

– In regard to both life and industrial policies ?

Senator Sir GEORGE PEARCE.The premium income is not taxed. What we are taxing are the profits earned by companies on their investments. Senator Needham made a number of loose statements about the majority of the companies being mutual concerns. Let us see what is the actual position. If honorable senators will turn to the Commonwealth Year-Book for 1927, page 415, they will find that of the Australian companies, seven are purely mutual and 24 are proprietary concerns with a paid-up capital aggregating £1,842,963. Some of the companies are engaged in fire, marine and accident insurance.

Senator Elliott:

– Will the Government accept an amendment to exempt mutual companies from taxation.

Senator Sir GEORGE PEARCE:

– No. I appeal to the honorable senator to realize his responsibility with regard to the Government’s financial arrangements. We are facing a serious financial position. The budget was so framed as to obviate a general increase in taxation, which would be extremely inadvisable at this stage in the economic life of Australia. It is easy for honorable senators opposite to play to the gallery and to say that in respect of this measure they will vote to save the working man from being taxed on his insurance premiums. I urge honorable senators on this side not to destroy a fundamental principle so vital to the adjustment of the finances. of the Government. The great bulk of the companies are proprietary concerns and I repeat that, in respect of the mutual companies, we are taxing only the profits made on investments. This tax will fall largely on the wealthier sections of the community. The average working man who insures his life takes out a policy of from £200 to £500. The amount of tax on the profits made from the investments of these companies would amount to probably lid. or 2d. a year in the case of such policy-holders, so that all this parade by the Leader of the Opposition about saving the workers from taxation is so much fustain and humbug. Those who will pay some appreciable amount of taxation under this scheme will be the large policy-holders - those men who have taken out policies for £10,000 and whose bonuses amount probably to between £40 and £50 a year. The taxation of the working man will be infinitesimal. One has only to look at the history of our war loan flotations to realize the amount of profits made by. some of these companies. Individual concerns were able to invest £1,000,000 and £2,000,000 in our war loans.

Senator Elliott:

– Was that a crime?

Senator Sir GEORGE PEARCE.No, it was a most praiseworthy act on their part; but since other investors are taxed on their profits, why should these companies be exempt.

Senator Ogden:

– Do the State Governments tax these companies?

Senator Sir GEORGE PEARCE.Yes, and the worst example of all is the State of Queensland, under a purely Labour Government. The taxation there on large insurance companies is higher than in any other State. Honorable senators will find this information in the third report of the Commissioner of Taxation, page 151. In Victoria, Tasmania, and Queensland the tax is on the premium income. We do not propose to tax that at all. I am not appealing to honorable senators opposite, because, as I have said, it is their policy to try to discredit the Government. I appeal to honorable senators on this side to remember that this is an important part of the Government’s financial proposals. If it is interfered with, the loss in revenue will have to be made good by a general increase in taxation.

Senator OGDEN:
Tasmania

.- I intend to support the Government. I do not anticipate the serious disabilities mentioned by the Leader of the Opposition (Senator Needham). I fail to see how this tax will be a heavy burden on the working man. But I am supporting the Government for what I suppose will be regarded as a novel reason. I am one of those who believe that there should be only one direct taxation authority in the Commonwealth-. In my opinion the Commonwealth Government should collect the whole of the income taxation, because, under existing conditions, with varying income tax rates in the several States, the burden is not laid evenly upon the people. In Queensland, for example, the direct taxation amounts to £5 per head, whilst in Western Australia it is about £3 4s. This inequality in the various States is responsible for economic results not at all favorable to those State authorities that have to impose heavy taxation. I am aware that certain people object to the Commonwealth entrenching upon what is commonly called the domain of State taxation, but I believe that the time is not far distant when the Commonwealth Government will be the only authority in Australia imposing income taxation. I assume, of course, that we shall then have to make some other arrangements to assist the States financially. Under the Constitution Alteration Bill recently passed, we shall have this power to make agreements with the States, provided that that proposal is endorsed by the people. If the Leader of the Opposition had moved an amendment to separate the proprietary from the mutual companies there might have been some reason to claim support from honorable senators on this side; but he has included all the companies in his amendment, and as his figures relating to the proportion of mutual and proprietary companies were so much astray, I am inclined to think that the whole of his argument falls to the ground.

Senator ELLIOTT:
Victoria

.- I am not prepared to go as far as Senator Needham; but I thought the Govornment would have agreed to bring down an amendment to provide that, this taxation should not apply to companies working on a mutual basis. As the Leader of the Senate (Senator Pearce) has stated, there are only seven mutual companies in Australia, and we all know that they encourage thrift among our people. Moreover, these companies gave powerful aid to the Government during the war. Their financial resources were a valuable standby at a time when it was difficult to get money.

Senator Crawford:

– Why should they not have done their bit during the war by investing their accumulated funds?

Senator ELLIOTT:

– I understand that the companies mentioned are” already heavily taxed by the State authorities, and I regard this duplication in taxation as a serious matter. I had hoped that we had got beyond that kind of thing, and am disappointed to find that we have not. I strongly object to the measure, but, in view of the appeal of the Leader of the Senate, I am not prepared to go so far as Senator Needham desires.

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

AYES: 4

NOES: 15

Majority . . 11

AYES

NOES

Question so resolved in the negative.

Amendment negatived.

Clause agreed to.

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

Senator ELLIOTT:
Victoria

.- In this clause the Government aims at taxing companies which are not distributing their profits. It is sometimes difficult for a company, floated, say, to exploit a patent, to obtain financial assistance. At times banks will advance overdrafts to such companies only on the condition that until they are repaid there shall be no distribution of profits. These companies are entirely different from well-established concerns like Paterson, Laing and Bruce, which would have no difficulty in obtaining financial assistance if desired. If the Government succeeds in taxing these struggling companies, their credit will be restricted. We should not discourage the formation of useful companies by taxing them in this way. Companies which provide work for our people should not be unduly penalized.

Senator Sir George Pearce:

– This clause applies only to private companies, not to joint-stock companies.

Senator ELLIOTT:

– It does not say “ a proprietary company “, but merely “ a company “.

Senator Sir George Pearce:

– It is aimed at individuals who form private companies in order to evade taxation. The clause follows the lines of recent legislation in England for a similar purpose.

Senator ELLIOTT:

– That may be the intention, but it is not clear from the wording of the clause.

Senator Sir George Pearce:

– It will apply only to taxpayers who pay at the rate of over1s. in the £1. It does not apply to joint-stock companies, but only to small private companies in which most of the shares are held by two or three shareholders.

Clause agreed to.

Clauses 10 to 22 agreed to.

Title agreed to.

Bill reported with amendments ; report adopted.

Bill read a third time.

Senate adjourned at 10.18 p.m.

Cite as: Australia, Senate, Debates, 19 September 1928, viewed 22 October 2017, <http://historichansard.net/senate/1928/19280919_senate_10_119/>.

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