25th Parliament · 1st Session
The PRESIDENT (Senator the Hon. Sir Alister McMullin) took the chair at 3 p.m., and read prayers.
– I wish to ask a question of the Minister representing the Minister for the Army. In view of the fact that at present no repatriation benefits can be paid to troops who are injured in going to or from a declared area, will he assure the Senate that no troops will be despatched to such areas until such time as the Government decides on the payment of repatriation benefits under those circumstances?
– The honorable senator’s question raises a matter of policy which I would not be prepared to deal with in answer to a question without notice.
– I ask the Minister representing the Minister for Supply: Has he any details of a London report that a European space group, which I think is known as E.S.R.O., is negotiating for the purchase of American rockets and launching facilities? Does he consider that such negotiations as have been reported would seriously cut development at Woomera in South Australia?
– It is my understanding that Australia has no interest in E.S.R.O. - the European Space Research Organisation - and that our interest is linked with the European Launcher Development Organisation. For that reason, I do not think the honorable senator’s question is applicable to the development of Woomera. However, if there are any other aspects of the matter on which he wishes to obtain information, I suggest that he place the question on the notice paper.
– I direct a question to the Minister representing the Minister for External Affairs. Is it correct that the French may establish a permanent nuclear base in the Pacific for the purpose of conducting more than the present projected nuclear test? Has any assessment been made of the dangers of such tests to the people of the Pacific area? Will the Government repeat its protests against the projected test, which is to be made in defiance of world opinion?
– I do not know of anything which would enable me to give an answer to the first part of the honorable senator’s question. If he wishes to pursue that matter, he can do so through me to the Minister for External Affairs or directly with the Minister. All I can say is that I do not know of anything which would enable me to give an answer to that part of the question. As to the second part of the question, there has been in existence for some considerable time the National Radiation Advisory Committee. From time to time it presents to this Parliament reports on the effects of radiation from all the nuclear tests which have been carried out. The reports which it has been presenting indicate that, in its opinion, there are not likely to be any significant effects in Australia from the projected test. This Committee is composed of scientists eminent in this field. That is their view on the matter raised by the honorable senator.
– I direct a question to the Minister representing the Minister for Externa] Affairs. Has the Minister read a statement by the Deputy Prime Minister of Thailand, Air Marshal Chulasap, that the Communists had started guerrilla warfare in Thailand’s northern province and that the pattern of operations conformed to that laid down in the Communist handbook? Air Marshal Chulasap also stated that there was evidence that North Vietnamese soldiers were involved. Has the Australian Government any information that would confirm the accuracy of this report?
– So far as I know, the Government has not any information on the particular report to which the honorable senator has referred, but it has known for some time that the Communists have been engaged in a programme of subversion, accompanied by murder and terrorism, particularly in the north eastern provinces of Thailand. This campaign is similar to those which preceded Communist attacks in Malaya and other countries. The Thai Government has been taking action against this terrorism and subversion for some time by way of economic and political measures and it has taken steps to initiate proper controls in the affected areas, .for instance by increasing border patrols. I do not know whether North Vietnamese soldiers are engaged in these operations but it will be of interest to the honorable senator that Great Britain, as one of the co-chairmen of the Geneva Conference, released information within the past few days to the effect that the 1962 Geneva Convention had been subverted and that North Vietnamese troops were being used in Laos in defiance of the Convention.
– Will the Minister for Civil Aviation inform the Senate whether all passengers on internal airlines are automatically covered by insurance? If they are covered by insurance, are there any special conditions - attached to the cover? Are the air passengers covered by the airline companies irrespective of any insurance the passengers might take out themselves? Are passengers on overseas routes covered as well as those travelling on ‘internal airlines? Will the Minister give his reply in language that lay persons can understand and as expeditiously as possible? -
– My reply will be’ in lay language that the honorable senator can understand. Apparently the honorable senator wants the information for ‘ a particular purpose and I believe the AttorneyGeneral should supply it. To the best of my knowledge air passengers are covered under an international convention but if the honorable senator will put the question on the notice paper, I will obtain a reply from the Attorney-General.
– I direct a question to the Minister representing the Minister for External Affairs supplementary to the question asked by Senator Murphy. I refer particularly to the conference being held in Sydney this week, sponsored by the Australian Council of Trade Unions and the New Zealand Federation of Labour and attended by delegates from Malaya and Singapore, to consider ways of halting the proposed French nuclear tests in the Pacific. Will the Government assure the people of Australia that it supports the protests being made by this conference and by others who are alert’ to the dangers to the peoples of the Pacific involved in nuclear explosions? Will the Government make it plain to the Government of France that it will take active and determined steps in co-operation with other nations in the areas of potential nuclear fallout to stop these tests taking place?
– I have no idea what the honorable senator means by “ active and determined steps “. The Government has made plain to the Government of France its opposition to these tests.
– I direct a question to the Minister for Civil Aviation. Has .he been correctly reported as announcing the appointment of Sir Roland Wilson, Secretary to the Department of the Treasury, as Chairman of Qantas Empire Airways Ltd.? Was he also correctly reported as saying that the Government believes that in future the chairmanship of Qantas should be carried out only on a part time basis? If this is the Government’s thought tra the matter, is it inherent in the Minister’s statement that, despite the vagaries of the Australian economic situation, the Government believes that the important . position of Secretary to the Treasury also can be undertaken on a part time basis?
– The statement I made was quite correct. I think we are very fortunate indeed to have such a ‘distinguished person as Sir Roland Wilson to follow Sir Hudson Fysh, who will retire on 30th June next. Sir Hudson Fysh, a distinguished Australian and a distinguished Tasmanian, has rendered service of tremendous value to Qantas. He is being followed by another very distinguished Australian and a very distinguished Tasmanian in the person of Sir Roland Wilson.
– My question, which is addressed to the Minister representing the Minister for External Affairs, relates to a statement reported In the Press to have been made by the United States Consulgeneral in Melbourne, Mr. Wieland. Mr. Wieland ls reported publicly to have criticised a Melbourne peace demonstration and to have said concerning this demonstration by citizens opposed to this country’s participation in the war in Vietnam -
The small turnout indicates that Melbourne’s two million citizens well understand the real issues involved in our joint struggle against Communist aggression.
Peace can come to Vietnam tomorrow if Hanoi will stop-
– Order! The honorable senator is giving far too much information. 1 am not sure that the question is in order.
– I merely wished to finish the quotation, which was critical of a Melbourne peace demonstration. I ask the Minister if he will ascertain whether the report is correct. If it is, will he inform Mr. Wieland that Australia does not welcome comments on matters of domestic controversy by representatives of foreign governments?
– The answer to the first part of the question is: “ No “. With regard to the second part, I think that a Consul-General has a perfect right to comment when demonstrations are made against bis country in front of his consulate.
– I ask the Minister for Customs and Excise whether it is a fact that, after many years of free entry into Australia, Christmas greeting cards and calendars that are distributed by the United Nations International Children’s Emergency Fund are now subject to customs duty and sales tax. As the imposition of such charges discriminates against this form of fund raising for mothers and children of many countries who need basic health services, and as it restricts support from ordinary Australian citizens for this worthy cause, will the Minister review the charges?
– The principle that is applied in such cases is whether a commercial or trading undertaking is involved. If such an undertaking is involved, clearly a duty is applicable. I think we all would agree that this is a fairly logical an3 sound basis on which to operate. I shall examine this particular case as requested by the honorable senator.
– My question fs addressed’ to the Minister representing the Minister for Social Services. Can the Minister inform me whether it is necessary for aged persons who are housed in institutions financed under the Aged Persons Homes Act to be in receipt of social service pensions? As recently a correspondent to a Western Australian newspaper stated that under Federal law it was necessary for all residents of these homes to provide at least one-third of the cost of their accommodation, will the Minister make it clear to the public that such payments are at the behest cf the individual organisation and are not an integral part of the legislation that was passed by this Parliament?
– Some matters of policy are involved in the question. Therefore I ask the honorable senator to place the question on the notice paper.
– Is the Minister for Customs and Excise aware of a newspaper report published over the last weekend which suggested that a chewing bone for dogs, which is made of genuine rawhide, has been imported into Australia? It has been suggested that this item could be a carrier of foot and mouth disease. Can the Minister make any comment about the manner in which this item is being allowed to enter this country?
– My attention has been drawn to the Press report referred to by the honorable senator. I have sought from my Department information on the circumstances surrounding the matter, from a customs points of view. As to the health side, I also saw a report of a comment made by the Minister for Health in relation to the matter referred to by the honorable senator.
– Can the Minister in Charge of Commonwealth Activities in Education and Research inform the Senate whether the Australian Universities Commission has been informed of recent proposals in Queensland to utilise fully the expensive facilities of Australian universities on a year-round basis by the institution of summer courses leading to degrees, as is the custom in many overseas universities, particularly those in the United States of America? Will the Minister also inform the Senate whether the University of Queensland will receive special consideration from the Commission by way of additional financial grants in the forthcoming triennium to institute summer courses on a trial basis at the University College of Townsville?
– I think the honorable senator’s question asks me to state whether special financial consideration will be given to a particular university if something happens in the next triennium. It seems to me to fall well within the definition of policy and is not a question I should answer at this point.
– I preface my question to the Minister representing the Minister for the Navy by referring to stories appearing in the Sydney weekend Press about Royal Navy petty officers being denied admission to certain Sydney nightclubs. Will the Minister institute inquiries to determine whether some Sydney nightclubs practise a policy of discrimination against certain ranks of the Royal Navy and Royal Australian Navy?
– I have no knowledge of this matter. I would be surprised if the stories are true. J shall ask the Minister for the Navy to supply an answer to the honorable senator’s question.
– I ask the Minister representing the Prime Minister: In view of repeated snide efforts to discredit the work of Australian troops in Vietnam, will the Government convey to our troops at an early date a message that the overwhelming majority of Australians have confidence in them, feel gratitude and admiration for their efforts and wish that their work will soon be crowned by victory, peace and a safe return home?
– 1 shall have much pleasure in conveying the honorable senator’s request to the Prime Minister. I believe the words he has used well describe the feelings of Australians, who are wholeheartedly behind the work being done by our forces in Vietnam, and who have nothing but admiration for their courage.
– Has the Minister representing the Minister for Health seen Press reports of dangers to human beings through the use of household insecticides? I refer particularly to reports that cancer could be caused by the injudicious use of insecticides containing DDT. Can the Minister inform the Senate what precautions are taken in Australia to see that all insecticides in use are not dangerous to human beings?
– I have seen reports along the lines indicated by the honorable senator. However, I think I will get from the Minister for Health a more specific answer to the honorable senators question than I could give at present.
– My questions are directed to the Minister in Charge of Commonwealth Activities in Education and Research. Is it a fact that in 1965 about 1,680 qualified first year students were rejected by the University of Melbourne and Monash University? Have quotas of admission for 1966 been fixed by Australian universities? In Melbourne, are quotas for 1966 fixed in the various faculties at practically the same levels as for 1965? Are any estimates available of the numbers of students likely to apply and the numbers likely to be rejected in 1966 because of the application of quotas? What steps are being taken by the Commonwealth Government and universities to ensure that as far as possible every student who has matriculated should have an opportunity to commence study in the faculty of his choice?
– Replying to the first part of the honorable senator’s question, I do not think it is possible to come to an accurate assessment, such as the figure quoted of 1,685 students, of the number of students alleged to have been rejected from the University of Melbourne and Monash University last year. I say this because, as is well known, a number of students register at both universities. So overlapping occurs and difficulty arises in coming to precise figures in this regard. I understand that the University of Melbourne has fixed itsquotas for next year at slightly above, but only very slightly above, the quotas that were fixed for last year. Monash University will continue its expansion at an accelerated rate next year.
What the Federal Government and the Australian Universities Commission are doing about this problem as a whole, if we are to confine ourselves to Melbourne, is to assist the accelerated project of Monash University. As the honorable senator knows, we have provided money for the steps to be taken to establish a third university at La Trobe. I do not believe that academic opinion would suggest that we should seek to reach the state where every matriculant at whatever standard could enter any faculty he wanted at any university. But I do believe that the steps being taken will provide for most people who require a university course and have a reasonable chance of graduating from it.
(Question No. 657.)
asked the Minister for Repatriation, upon notice -
– The answers to the honorable senator’s questions are as follows - 1 and 2. The works programme for the current financial year for improvements and extensions to the Repatriation General Hospital at Greenslopes is £157,000. The major portion of this amount, £125,000, is for the erection of a paramedical block. It is planned to call tenders for this project in May and it will be completed as soon as possible after this date. Substantial additions to the hospital are now in course of construction and are planned for completion during this financial year. These include a new pathology department, additional operating theatres and a central sterilising department totalling £205,000. The allocation made each year is decided by the Government of the day in the light of needs and resources.
(Question No. 667.)
asked the Minister representing the Minister for Labour and National Service, upon notice -
– The Minister for Labour and National Service has supplied the following answers - 1 and 2. A statement on the motor industry will be made when the Government has considered the Tariff Board report on it. Obviously this is a quite complex matter involving quite far-reaching considerations.
(Question No. 698.)
asked the Minister representing the Prime Minister, upon notice -
Referring to Table 16 in the Forty-first Annual Report of the Public Service Board for the year 1964-65, showing a total number of 5,430 members of the permanent staff leaving the Service by resignation during the year ended 31st December, 1963 - (a) what were the main grounds given for resignation from the Service; (b) in each case, how many persons stated the particular ground for resignation; and (c) how many of these persons went to other employment after resignation from the Service and what were the main categories of new employers?
– The Public Service Board has provided the Prime Minister with the following answer to the honorable senator’s question -
The main reasons for resignation, together with the numbers involved, of the 5,430 permanent officers who resigned from the Commonwealth Service during 1963, were as follows:-
Officers resigning from the Service are not required to give their reasons for resignation or details of their proposed employment after resignation. The foregoing figures have been compiled from the records of persons who gave reasons for resignation but no information is available concerning new employers or the numbers of persons involved.
(Question No. 714.)
asked the Minister representing the Minister for Trade and industry, upon notice -
What are the relative exports and imports of (a) fork lifts, (b) cranes, electric overhead traveller types and mobile traveller types, (c) tractors, and (c) rock buggies and graders?
– The Minister for Trade and Industry has supplied the following answer -
Some of the details requested are not separately recorded in the trade statistics. However, statistics which broadly cover the range of items described in the question are as follows -
(Question No. 724.)
asked the Minister representing the Minister for Territories, upon notice -
– The Minister has now supplied the following answers -
(Question No. 727.)
asked the Minister representing the Minister for the Army, upon notice-
– The Minister for the Army has provided the following answers to the honorable senator’s questions-
(Question No. 730.)
SenatorMULVIHILL asked the Minister representing the Minister for Immigration, upon notice -
What are the functions of, and who are the accredited Australian representatives on, the following immigration groups -
International Council of Voluntary Agencies, and
– The Minister for Immigration has supplied the following answer -
The stated function of the International Council of Voluntary Agencies is to help refugees, migrants and other people in need of assistance by the international community. The Council does this by -
The International Council of Voluntary Agencies conducts its work through a biennial conference, commissions and a governing board. The number of I.C.V.A. member organisations is now 83. In view of its constitution and character, governments do not have accredited representatives, but at the invitation of I.C.V.A. the Australian Government has sent as an observer to the last two biennial conferences, an officer of the overseas staff of the Department of Immigration.
Agenciesin Australia, or the Australian counterparts of international agencies, affiliated with I.C.V.A. are- (0 Australian Jewish Welfare Society.
Young Men’s Christian Association.
There is naturally no accredited representative of the Australian Government to Caritas International.
(Question No. 736.)
Minister representing the Prime Minister, upon notice -
– The Prime Minister has provided me with the following answers to the honorable senator’s questions -
The President, Signor Colombo, conveyed the Council’s declaration by letter to the French Foreign Minister, M. Couve de Murville, on 27th October. Although the official French reaction to the initiative of “The Five” has not been made public, it is reported in the Press that the French Government has agreed in principle to a meeting.
It will be recalled that the Australian Government had hoped that the Kennedy Round negotiations would open up access to the Community market for Australian primary products and the generally beneficial to world trade in agricultural products. The deadlock in the Community is holding up progress in this field.
(Question No. 765.)
asked the Minister representing the Minister for Supply, upon notice -
– The Minister for Supply has furnished the following replies -
– by leave - I present the following paper -
Report of the Australian Delegation to the Interparliamentary Union Conference held at Ottawa in September 1965.
I ask for leave to propose a motion in connection with the report.
– There being no objection, leave is granted.
– I move -
That the Senate take note of the paper.
I ask for leave to make my remarks at a later stage.
Leave granted; debate adjourned.
Assent to the following Bills reported -
Customs Tariff Bill (No. 3) 1965.
Tobacco Marketing Bill 1965.
Tobacco Charge Bill (No. 1) 1965.
Tobacco Industry Bill 1965.
States Grants Bill 1965.
States Grants (Special Assistance) Bill 1965.
Foot and Mouth Disease Bill 1965.
Judiciary Bill 1965.
Judges’ Remuneration Bill 1965.
States Grants (Research) Bill 1965.
– I have received a message from the House of Representatives relating to the appointment of a joint select committee on a new and permanent Parliament House. Copies of the message have been circulated to honorable senators.
Motion (by Senator Henty) agreed to -
That consideration of the “message be made an order of the day for a later hour of the day.
Debate resumed from 2nd December (vide page 1985), on motion by Senator Henty-
That the Bill be now read a second time.
– The Opposition has no objection to the Bill which, in another place, was subjected to many amendments. We of the Senate - in fact, members of the whole Parliament - are greatly assisted by the explanatory memoranda which the Commissioner of Taxation, with his customary efficiency and courtesy, causes to be issued in relation to the measures that he promotes. We have not only the first exceedingly comprehensive explanatory memorandum dealing with the Bill as floated but also a supplementary explanatory memorandum in relation to the many amendments that were moved before the Bill reached us.
The Bil] deals with a number of matters which we of the Opposition find unexceptionable. It is proposed to shorten the title of such bills. Instead of the Bill being known as the “Income Tax and Social Services Contribution Assessment Bill “ in future we shall simply call it the “ Income Tax Assessment Bill “. There will be a similar change in the Income Tax Bill which we are to consider later. That change unquestionably is to the good. It will make for a great saving of time and of printing in the various references.
It is proposed by means of this Bill to exempt from income tax the pay and allowances of members of the defence forces serving in Vietnam and Borneo. A similar provision will obtain in respect of the Defence Forces Emergency Reserve. It is proposed to extend tax relief to wool growers who were forced by drought conditions to advance shearing dates and accordingly had two wool clips in the income year 1964-65. They are to be given the right to transfer the proceeds from the second wool clip to the current financial year. That is a reasonable and an equitable arrangement.
The Bill also covers a number of other items which are set out on pages 3 and 4 of the explanatory memorandum. It deals with prior year losses of companies and makes an interesting provision which is an amelioration of the existing laws. It deals also with the income of superannuation funds. It seems that we shall have a thorough opportunity to review this ‘provision at the Committee stage. The Bill deals with the question of contributions to superannua tion funds and also with profits made on the disposal of treasury-notes, if a capital profit is made. It is provided that if such a profit is made there is to be no rebate of taxation. In other words, the rebate of 2s. in the £1 which at present applies is not to apply to any gain that is made in this way. The Bill also deals with the exemption of bonus shares. It provides for an exemption from tax of dividends paid to Australian residents by companies which are, according to the law of the Territory of Papua and New Guinea, engaged in pioneer industries. Such income is to be exempt if the Australian Government also regards the company concerned as truly engaged in pioneering an industry. Reference is made in the Bill to subscriptions to associations and to allowances in respect of the conversion of machines to decimal currency.
Generally, the Opposition finds itself in accord with the expressed purposes of the Bill. I have already indicated that some of its purposes are to change and to ameliorate provisions written into the law by Act No. 110 of November 1964. Honorable senators will recall that that Act was based upon the recommendations of the Ligertwood Committee. It represented action by the Government after the recommendations of the Committee had been under consideration for more than three years. Unfortunately, there was not a great deal of time for scrutiny of the measure in the Parliament. It was a most comprehensive measure and also a most complex one. It is good to find in the Bill before us that a number of the lengthy sections that were incorporated in the Act in 1964 are now being repealed and re-written in the light of other considerations that have obtruded in the meantime. I regard that as a very good sign, and so does the Opposition. It is good to know that these novel laws are being scrutinised carefully and that as anomalies develop, or when it seems that improvements are desirable, they are considered. I have little doubt that, having regard to the complexities of the matters to which the 1964 Act was addressed, we will have a long procession of measures in the years immediately ahead - amending, expanding and, I would hope also, in some instances contracting the provisions of the 1964 law.
I confess that time was when 1 had some general working knowledge of the income tax law, and particularly of the assessment Acts, but with the passage of time consideration of the income tax law has become a matter for the experts. It demands not only close study but also continuous study if one is to both understand and remember it. 1 confess to great difficulty in keeping in mind all the factors which operate in relation to trusts, partnerships, superannuation funds, alienation of income and the other four or five matters that were covered by the 1964 Act. Quite frankly, 1 no longer have time to keep pace with the rapid developments in income tax law and I leave the field to those who specialise in it. As I said on behalf of the Opposition last year when dealing with these momentous changes, it is impossible for any law to provide for all the contingencies which may arise when safeguards to the revenue are being considered. Human relations are so complex and can vary to such a vast degree that no mind or combination of minds can foresee all the eventualities. Then, on the other hand, there are ingenious people in the ranks of the tax advisers who can find ways around laws as they are expressed.
The Ligertwood Committee gave us many examples of the ingenuity and complexity of the manoeuvres undertaken by certain taxpayers to avoid the spirit of the law and, in effect, by resorting to what have been termed tricks and stratagems of various kinds, to evade or avoid taxation. Wc of the Opposition know that these evasions or avoidances are mainly at the instance of the more affluent members and bodies in our society. There is no difficulty with (he ordinary wage earner, who has no money for the purpose of creating huge superannuation funds, who does not engage in partnerships and who probably has very modest, superannuation benefits available to him. So the great body of the people are not caught up in the rather extraordinary provisions of the 1964 Act. Only those who have funds that they wish to conserve and safeguard are prepared to resort to devices of the type I have described. In June 1961 the Ligertwood Committee reported that taxation to the tune of £14 million per annum was being avoided. It was that factor, coupled with particulars of the avoidances, that led to the 1964 legislation. We are now faced with the fact that that legislation, in six out of the eight fields of avoidance to which it was directed, is to apply only to income earned in the period from 1st July and this year. We are now in the very early stages of its application, in relation to six of eight matters, to incomes in Australia. In relation to two matters - one of which was the alienation of income and I have forgotten for the moment what the other was - the legislation did have retrospective effect.
That brings me to the fact that in the field with which the 1964 legislation was concerned, we run up against the very generous discretions and authorities that are vested in the Commissioner of Taxation, in general terms to determine what is reasonable to satisfy him about the fulfilment of particular conditions. It is not the type of law that one approves generally and it is not the type of law that has the certainty we would like to see; but it is dealing with a field that is exceedingly flexible, active and ingenious. I repeat that it is impossible to see right into the future, and the only way to have effective safeguards is to have these discretions and authorities vested in the Commissioner of Taxation.
The same difficulty has been encountered in the United Kingdom. As life and business grow more and more complex more devices are resorted to. It is impossible for the law to keep up with them as they occur, and certainly impossible to foresee them. The very difficulty we face in relation to the 1964 legislation is one that the taxing authorities in the United Kingdom, with all their experience down the centuries, have not been able to solve. They have a type of procedure similar to that adopted by this Parliament last November. I expressed the hope then and I repeat it that, as tax returns are submitted for the first time at the end of this financial year, as they are scrutinised in the Taxation Branch, as assessments are issued and objections are taken in a court or before the Taxation Boards of Review, many matters will come to the surface that are not known to us now.
The 1964 legislation should be given a fair trial so that we can see, first, just what evils are afoot that have not yet been encountered in the taxation field and, second, the effect of the operation of the laws that have been passed. In particular, we want to see bow the discretions and authorities of the Commissioner of Taxation are being exercised. The Commissioner of Taxation Kas taken a useful step by issuing public information bulletins. By this means, the Commissioner is seeking to give to the people in the various fields of interest information as to how he proposes to exercise his discretions or authorities. Personally, I have not heard any complaints so far about the general lines of conduct laid down by the Commissioner for himself and his officers as his delegates.
I was interested to pick up quite recently a document issued by the Taxpayers Association of New South Wales and containing submissions that had been made by the Association to the Treasurer (Mr. Harold Holt). The document is not dated but it was issued well after the passage of the legislation in November last year. It is signed by Mr. John McKellar White, Research Director of the Association. This Association is very active in the taxation field and the submission contains some significant’ comments to which I wish to direct general attention. Under the heading, “ Partnerships and Trusts “, the submission supports what I have said to the effect that it is too early to assess the impact of the 1964 legislation with an additional comment. It states -
Although it is too early (the provisions commence to operate only as from July last) to gauge the extent of disturbance to existing family arrangements, we are told by members of the legal profession that it has become most difficult in many instances to give adequate effect to otherwise desirable family arrangements and dispositions without involving the risk of penal rates of tax applying.
Of course it is too early, but I shall be interested to hear instances of these things in the course of whatever debates we have now or in the future on this legislation. This is the one way in which we can test the appropriateness of the legislation and the need for any changes. On the very controversial subject of discretionary powers, Mr. McKellar White had this to say -
The principle of endowing the Commissioner of Taxation with wide discretionary powers provoked widespread concern when the original legislation was introduced in October, 1964, but we do not seek to repeat what we said at length in our earlier submissions.
In the light of experience over the past months we would like fo say that, the .Commissioners of Taxation and their Officers, by the issue of “ Public Information Bulletins “ and by a willingness to dis cuss and rule on specific cases, have done much to reassure our fears of an era of bureaucratic dictatorship.
It is very consoling to those of us who are” disturbed at the handing over of discretions of exceedingly wide scope to the Commissioner of Taxation to find one of the watchdog associations stating that the fears that in theory it expressed have tended to dissipate from the time it found the Commissioner to be approachable and ready to furnish advice on what might happen. Mr. White went on -
If it were feasible for all discretions to be actually exercised by the Commissioner personally, this feature of the new law might be more acceptable. But in practice of course, the discretions must be delegated down the line and inevitably, in our view, cases will arise where discretions are made capriciously without an expert appreciation of the facts and, in some cases, may conflict one with another.
That is a fair- comment on the theory, but it depends upon the practice whether there will be conflict and whether at the lower levels under the Commissioner there will be capricious decisions. 1 hope that persons in the community who are concerned with taxation will bring to the notice of their parliamentary representatives anything of this kind that occurs.
I repeat that I have not yet heard of any particular instances, and that I wouldnot expect to do so at this early stage, where the activity of the Commissioner is really confined to advising bodies as to their position in relation, not only to future transactions that they are contemplating, but also to deeds and arrangements that have been operative in the past and that might be affected adversely by the new legislation. Mr. White continued -
We are aware of the difficulties of framing legislation of this nature without resort to discretions . . these difficulties were well explained in an Address given by the Commissioner of Taxation, Mr. Cain, and published in “The Taxpayers Bulletin” of June 26, 1965 . . . but we adhere to the objections previously expressed and commend to you the positive suggestions then made -
He then proceeded to list five suggestions which it is not my purpose to read to the Senate at this stage. I derive a very great deal of reassurance from the comments of Mr. White which I have put to the Senate.
The Senate may remember that in 1964, at the Committee stage of the debate, I sought assurances from Senator Henty, who was representing the Treasurer, that the Commissioner would continue his practice of furnishing advice in advance on whether particular courses of action would fall within the statute. At page 1632 of “Hansard” of 11th November 1964, Senator Henty is reported to have said -
I refer first to the matter raised by Senator McKenna. 1 agree with him that sometimes it is of great importance to be able to consult the Commissioner of Taxation on steps which an organisation proposes to take on the advice of an accountant or a lawyer. It is very important that this service should be available and that organisations should be able to approach officials of the Taxation Branch and say: “In spite of the advice 1 have had, I wonder whether the proposals 1 have in mind would be interpreted to conform with the taxation law as it stands “. That opportunity has always been available to taxpayers and, so far as is reasonably possible, it will be available in the future. 1 have only one qualification to express: Persons consulting the Taxation Branch must place their cards on the deck. At times people approach the Taxation Branch and do not make full disclosure of their intentions. They try to anticipate decisions which are not in fact given. Then, of course, they complain about the action taken. The service is available, I am sure, to all taxpayers asking for advice who place their cards on the deck.
I am delighted to have the assurance of the Treasurer in a speech made recently in another place during the debate on the Bill before the Senate. In a reference to the activities of the Commissioner of Taxation and his officers, he said -
There have, of course, been many approaches to the Commissioner of Taxation regarding the implementation of the new legislation and the Commissioner has given advice affecting literally thousands of superannuation funds. In some cases the advice has been given directly to the trustees; in other cases it has been given to the sponsors and advisers of the funds . . . The experience so far - and it is already quite extensive experience - shows that the vast majority of employeremployee funds of the traditional type will not face major difficulties in meeting the tests of the law. From the knowledge already gained, it is extravagant to suggest that many bona fide funds in Australia cannot qualify for exemption from tax. On the contrary, any fund that does not qualify will have features that, at the very least, throw grave doubts on whether there is an equitable case for exemption.
From inquiries I have made, I understand that nearly all of the insurance companies of Australia have conferred with the Taxation Branch regarding the funds within their control or with which they are associated. They represent the vast bulk of superannuation funds throughout Australia. I am told, too, that of the private funds administered directly between employers and employees, at least three-quarters of the relevant agreements already have been scrutinised by the
Taxation Branch which has furnished advice on them. That whole field in superannuation, at least, is well under control thus early in the first year of income which will affect the funds. Ample notice has been given to the funds and I am advised that many of them do not need touching at all. Those which are affected can comply without very much difficulty. Undoubtedly there will be some inconvenience to the further work of trustees, but that is inseparable from the need to protect the revenue from the type of activity which provoked the 1964 legislation and the stringent comments of the Ligertwood Committee.
I express my indebtedness to Senator Wright for the fact that he has addressed himself to the .1964 legislation in matters both within and without the Bill. It was useful to have his thoughts before me as I studied the Bill. I commend the honorable senator for his industry and thank him for his courtesy. The original first draft of the amendments that have just been circulated came to my hands sometime ago and enabled me in advance to put Senator Wright’s general thoughts before the executive of my party, so that 1 have really armed myself wilh their opinions in relation to these matters. In Senator Wright’s statement in relation to discretions, he deals with them at some length. I will not be dealing with that subject at length at this stage of the debate.
I would .like to take the opportunity of commending to the Government the submissions by the honorable member for Melbourne Ports (Mr. Crean) in another place on 24th November last regarding the need to overhaul completely what he referred to as the progressive tax structure. The tax structure was set up in 1954, since when it has been subject to percentage increases up and down. This year we are faced with another flat rate increase in taxation. Mr. Crean developed the theme that flat rate increases and decreases completely distort the tax structure. Those honorable senators who have followed the types of graphs that the Commissioner of Taxation prepares to show the curve of taxation will be aware that flat rate increases and decreases lose the line and get an entirely new curve. Mr. Crean also argued for the increase from the viewpoint of the inflation that has taken place since 1954. He dealt at considerable length with the demands that there should be a new starting point and perhaps a new curve, and with the subject of concessional deductions. I hope that the Government and whatever parliamentary bodies may in future address themselves to this question will have regard to those factors.
I turn now to what is only a relatively domestic matter. When the last Labour Government was in office, it set up the system of zone allowances and provided for a very generous allowance for people living in zone A, which is described in a schedule to the Income Tax and Social Services Contribution Assessment Act at page 426. The provision is contained in section 79a. Those persons who live in the northern areas are entitled to a deduction of £270 a year, together with an increased concessional deduction of 50 per cent, on the allowances otherwise made in respect of dependants and a housekeeper. Persons living in zone B, which picks up the west coast of Tasmania, are entitled to what seems to .be a comparatively insignificant deduction of £45 a year as an allowance. Instead of benefiting from an increase in concessional deductions for dependants and a housekeeper of 50 per cent., as is the case in zone A, in addition to the standard deductions, they benefit from a deduction of one-twelfth.
The considerations which, according to the Act, should determine the matter are climatic conditions, cost of living and isolation. These are the three factors. Tasmanian members have repeatedly asked the Treasurer to initiate a greater zone allowance in that area. Those suggestions have not been successful to date. The Treasurer has replied at great length, saying that he thoroughly understands the problem but that because of factors that concern him in other directions - the heavy commitments from time to time which he particularises - the Government has not been able to do anything about the matter.
I can say with certitude that the number of people involved on the west coast of Tasmania is not large, in any comparative sense, and that the adoption of our suggestion would not cause any significant loss of revenue to the Treasurer. I do not think the defence effort would be dependent upon the amount of money that otherwise might be obtained if some increase in the zone allowance were given. I raise this matter quite publicly because it has been a subject upon which I think all Tasmanian members have interested themselves for quite a number of years. A few small increases have been granted. I make my plea in this public way to the Government to give further consideration to the matter. This time, instead of belatedly taking the matter up approaching Budget time, I am raising it now so that the Treasurer will have ample notice of it. 1 am sure the Acting Leader of the Government in the Senate (Senator Henty), who represents the Treasurer here, will find himself in full sympathy with the plea that I make. Mr. Acting Deputy President, I indicate that the Opposition will not move to oppose the Bill.
.- Mr. Acting Deputy President, it is not to be unexpected that the Opposition will not oppose a bill of this description because one of the great instruments that the Australian Labour Party seeks to use in its socialisation programme is harsh taxation administered at the discretion of the Taxation Branch. Insofar as this Bill re-enacts many of the vicious sections of the November 1964 legislation it should be thoroughly condemned. It represents, in my view, the destruction of fundamental principles upon which individual rights depend. If a person in this community is not free in proper circumstances to make a partnership agreement, to make a family trust or to establish a superannuation fund - in each case with proper regard to his fiscal obligations - then individual rights are destroyed. When, to that situation, is added the idea of imposing a penal tax of 10s. in the £1 upon people who make a family trust, enter into a family partnership or enter into a superannuation fund, that is confiscation which, I would have thought, could not be condoned in this community. The fact that it cannot be condoned is indicated by the weak antidote that the Minister for Civil Aviation (Senator Henty), who brought in the legislation, has provided in the form of discretions conferred on the Commissioner of Taxation to relieve transactions, as the Commissioner pleases, from that vicious legislation.
Have we reached the stage when this community, in the name of income tax legislation, can impose a tax of 10s. in the £1 upon the income of a partner who has not a complete control of his income; can impose a tax of 10s. in the £1 on the income of a trust simply because that trust, not being a testamentary trust, is not for the moment payable to any particular person; and can impose a tax of ids. in the £1 upon the entire income of a superannuation fund simply because there has been a non-compliance on the part of the trustee managers in respect of the income which virtually belongs, in the case of a section 23 f fund, to the employees and under a section 79 fund belongs to the beneficiaries? If that situation has been reached, Parliament, simply because there are so many like the Leader of the Opposition (Senator McKenna) who will not keep up with the implications of the legislation and the fundamental principles in writing, from time to time hands over the function of guarding the people from vicious taxation and leaves the matter to a departmental official - the Commissioner of Taxation.
Mr. Acting Deputy President, it is fundamental to my thinking that taxation should be written by the law. Why? It is because it is fundamental to my thinking that a departmental head cannot be relied upon, in our system of government, to discharge the responsibilities which go with the interpretation and the application of the law to particular transactions in a final sense. We entrust to the Commissioner of Taxation, of course, the duty of original assessment but we safeguard the authority that we give him by providing for an appeal from his decision either to an administrative board of review or, at the option of the taxpayer, to the ordinary courts of law. If there is a Liberal in the Parliament who does not realise the dependence that our system of government owes to the jurisdiction of the ordinary courts of the land, then we are failing in our sense of responsibility to those who put us here. The fundamental safeguard of individual rights in the long run is free access to an independent court - not a departmental officer, but an independent court - whose function is merely to interpret the written rule of law, as distinct from the departmental officer whose function is to exercise a discretion, a personal discretion, not in accordance with a rule of law. These things are so fundamental to this legislation that I persist, as I have throughout the whole interim since the November 1964 legislation was put upon the statute book, with implacable opposition to many of the principles which it writes into the Act.
So far as I can see, the only excuse that the Opposition has for condoning the legislation is that it perceives in the expanded jurisdiction of the departmental officer exercising power - unexampled power, unparalleled over the years - over the work and productivity of the taxpayers of this country a further step towards the objective to which I referred at the beginning of my speech. The Commissioner of Taxation is to be given the discretion to say: “ Smith you shall pay so much: Brown, you shall pay nothing “. The Commissioner of Taxation is to have the discretion to discriminate between Smith and Brown. Mr. Acting Deputy President, the primary responsibility of that officer, upon whom Parliament places this responsibility by this odious legislation, is to gather the revenues of the country to meet the demands of the Budget. Having regard to the enormous dimensions of our income tax assessment field - for companies and individuals alike it is approximately £1,100 million - just imagine the bias of the official towards that paramount duty from which he cannot separate himself.
Another aspect of this discrimination on the part of the Commissioner of Taxation is that he, of all officials, is unique in this regard. I do not say he is the only official who has this obligation, but he has it to a unique degree. The obligation of secrecy in respect of individual taxpayers affords him the power to discriminate between Smith and Brown. He is not permitted by law to tell Smith what decision was made in Brown’s case, whereas in all the courts of this country the rule - upon this they have established their cherished tradition of impartiality - is that a case from beginning to end, shall be heard in public, so that Brown hears what Smith says in support of his case and, if Smith and Brown are adversaries, they each hear what is said against them.
The decision is likewise delivered in public. It is a cardinal rule of the British courts that, except by statutory authority, they have no jurisdiction to affect any person’s rights except by public hearings. I am not speaking, of course, of the chamber jurisdiction of Chancery as to incidental matters.
Senator McKenna finds some reassurance from the fact that we are now revising the 1964 legislation. Let me refer to section 23f, which deals with superannuation funds. Honorable senators will notice that the Treasurer (Mr. Harold Holt), in his speech this year, referred to the hasty passage of the vexed November legislation through both Houses of the Parliament. It was scarcely debated in another place. I think some two and a half hours might have been spent on the whole Bill. If my memory is at fault on this, someone will correct me. In this place we tried to have a select committee appointed, but we were unsuccessful. Having regard to the complexity of the measure, the debate in this place occupied only a short time. We were told then by the Treasurer that the legislation would be under constant review and we were promised that a review would be made in the April session of the Parliament in 1965. There was no announcement of any reconsideration of the legislation, much less of a decision to revise it, until after the Parliament rose for the winter recess. The only advice that the Parliament received of the Treasurer’s thinking on any revision was a Press announcement on about 10th June.
What do we find in relation to superannuation funds? We find the Leader of the Opposition in this place supporting the proposals. What were the two innovations? They were, first, that it would be permissible to introduce into the employee class, and make legitimate in these funds, a’ director of the company even though he could not establish that he was in fact an employee. The second was a tinpot alteration, which is only so much verbiage, put forward by people who have a complete misunderstanding of the obligations of trusts. It related to the time element involved in replacing forfeited benefits so that they could be used for the primary purpose of the fund. The Commissioner would lay down a certain time schedule and then demand a written undertaking from the trustees’ that they would do something that it was their duty under the deed to do. Those were the two proposals which were advanced as the first instalment of a review in June this year.
Then, interest persevering in this matter - I make some claim to having maintained a persevering interest in it - people began to study the Bill. Many representations protesting about and criticising the legislation were received from many thoughtful sections of the community - sections which it is only an artful dodging device to characterise as tax dodgers. Then this Bill was presented to the Parliament. A few of my colleagues and I, in anticipation of the Bill, had commenced to give concentrated study to the enormities of the November 1964 legislation. Representatives of the Government parties . in another place had time to deal with a few amendments that the present legislation obviously required. If honorable senators look at the “ Hansard “ report of the debate on this Bill in the House of Representatives and see the scope of the amendments that the Government accepted from the honorable member for Parramatta, Mr. Nigel Bowen, Q.C., they will see the extent of the repair that this legislation needed within only a week or 10 days. Then if honorable senators read the speeches of the secretary of the Government Members’ Finance Committee - the honorable member for Swan, Mr. Cleaver - and the speeches of other members of that Committee, they will see that amendments were confined upon the basis that a continuing and purposeful review would take place, so that other major alterations could be made to the legislation.
That is the situation in which we are being asked to re-enact for a second time sections 23f and 79 of the November 1964 legislation. The purpose of all these major amendments must be to put them into consonance with proper principle and to give a decent degree of salutory legal protection, not administrative discretionary protection, before an independent, impartial, secure court of law after a public nearing, if one wishes to have access to that. The whole idea of the review is to save the business community the vexation entailed in the charters of all superannuation funds in the country being turned out, having every T crossed and every I dotted, being submitted to Canberra and having the necessary amendments made. 1 read a little while ago that dependents were to be provided for on death and that the requirement of the Commissioner of Taxation was that the deed should make it clear that it was for the maintenance and benefit of the dependants that the superannuation fund should go. If this legislation is against principle, if it is in need of review, if we are men of responsibility, if this Parliament is conscious of its obligations to the taxpayers and to the rest of the community, which depends upon a proper system of taxation to yield the funds that we devote to defence, to State programmes, to education and to social services, then we will defer the legislation and discuss it in a committee, aided, as we have been in all consultations for which I have asked, by resourceful, courteous and painstaking co-operation from the Commissioner and his officers. Then the Parliament would discharge its function by introducing legislation in accordance with principle and on a proper basis for administration. This would overcome the vexatious interference with people which results from the present law, which Senator McKenna and others hope will be continually reviewed. If we made a proper businesslike approach to this proposition, the taxpaying community and the rest of the community would have stability as the basis upon which they could govern their affairs.
I deplore the attitude that says: “ This Bill has come from the Parliamentary Draftsman. The Treasurer wants to get it through before Christmas. The Parliament has to rise by such and such a date. Let the Bill go through and it can come up for revision early next year.” I think that is a kindergarten attitude. Mr. Acting Deputy President, do you think that I, when appearing in a court of law on behalf of a client, would say to the judge: “Because I am pressed for time, I will submit to judgment today but you have to promise me that I can approach the court next March to have the judgment reviewed “? I think it is deplorable that we will not get down to considering which provisions of the Bill should not be accepted.
So far as the Bill introducing new matter, other than what was included in the November 1964 legislation, I do not think that there is one item to which I would object. 1 agree with the provision for exemption from taxation of the pay and allowances of servicemen in Vietnam and Borneo. With regard to the alteration to the provision relating to treasury-notes, I yield to the greater understanding of those who have an insight into the money market and who think that the rebate of income tax in respect of treasury-notes is so uncertain in its incidence that the provision ought to be withdrawn. I am pleased to note that the efforts of my colleague in another place, the honorable member for Henty (Mr. Fox), concerning the conversion of business machines for use with decimal currency have not been unavailing. He has been able to induce the Treasurer to change the original proposals in the Bill, so that the cost incurred in the conversion of business machines for use with decimal currency, will now be allowed as a deduction from income for taxation purposes in the year in which the cost is incurred. I also agree with the assistance that is to be provided to pioneering industries in Papua and New Guinea.
But there is one item which shows how one should be sceptical, even in matters of this kind. Reference was made in the first paragraph of the second reading speech to the provision in the Bill which enables the Commissioner of Taxation to grant relief to a wool grower who has been forced by drought conditions to shear twice in one year. I am sceptical of that provision because if one looks at the Ligertwood Report - which was presented to us in, I think, 1961 - one finds this statement concerning wool clips in paragraph 512 -
A submission stated that it is administrative practice, where a grazier has his shearing delayed beyond the end of a financial year because of circumstances beyond his control, to allow that grazier to bring the net proceeds of the shearing to account as assessable income in the year in which it would normally be received. It requested that the Act be amended to give the Commissioner of Taxation a statutory discretion to approve this present accepted practice.
Paragraph 513 states -
As the Section appears to be operating satisfactorily, we do not favour alteration of the existing law, because the Commissioner recognises the contingency, and any further proviso in this special case might create other inconsistencies.
We find the Committee’s recommendation in paragraph 514, which states -
The Committee recommends that no alteration to the Act is required in regard to the case of a grazier who would receive the proceeds of two wool clips in one financial year.
I take exception to the fact that this proposal is being put forward as a gracious gesture now, deserving to be ensconced in a statute. The present provision seems to have met with such satisfaction in an administrative way that the Ligertwood Committee declined to make any alteration to the Act. Notwithstanding that, I have no objection to thelaw regarding the two wool clips being expressed in the proposed manner, although 1 am at a loss to understand why, if the administration was capable of dealing with the position so satisfactorily that Mr. Justice Ligertwood declined to recommend that an alteration be made in the law, this provision comes up for legislative enactment now, in a year in which wholesale discretions are supposed to be the need of the Commissioner and the writing into the law of such provisions is said to be anathema to the Commissioner and an implement of tax dodgers.
The original facade which the Treasurer put up when the Ligertwood Report was announced was that instead of simplifying the law the Government would complicate it if it attempted to close up a lot of loopholes that tax dodgers had found. I for one place great emphasis on the need for an early decision to implement the recommendations of the Ligertwood Committee concerning tax evasion. If there are in existence some of the rackets that were disclosed by the Ligertwood Committee, I believe that a Bill should be introduced to close them up forthwith. But there has been a delay of three years and what do we find now? I have mentioned before one of the rackets that the Ligertwood Committee disclosed, involving the construction and leasing of big city buildings. People were getting deductions for capital cost of a building while earning revenue from it. In paragraph 271, Mr. Justice Ligertwood gave the following example -
The taxation position is that -
When the Treasurer said that this provision was to be altered, he said that any legislation to clear up the matter would operate as from June 1961. When the legislation came in, so far from clewing up the loophole as from June 1961, it continued to allow all transactions of that character that had been agreed upon before November 1964 to enjoy the deductions through the period of the transactions.
The other example, in paragraph 281, concerns the owner of an undeveloped city block who consents to an investor erecting a £1 million building on the block. The owner grants the investor a 98 years lease of the building at an appropriate ground rent. The investor sub-leases the building to tenants, and the building reverts to the owner at the expiration of the lease. The paragraph states -
The taxation position is that -
The investor gets a deduction of the cost of the building spread over the term of the lease.
The owner is assessable on instalments of the value of the building at the end of 98 years. However, the value at the end of 98 years may be expected to be negligible.
The Committee went on to state -
Had a similar building been erected on freehold property, the investor would not have been allowed any part of the cost of the erection as an allowable deduction from his assessable income.
As I have added in a note that I have circulated, an allowance would not be made even for depreciation. So far from that position being corrected as from June 1961, it was cut short only in November 1964, but as to leases or agreements for leases that had been made in the interval between June 1961 and November 1964, half of the community took the Treasurer at his word that they would be stopped as at June 1961 and forbore to exploit the position, and the other half, who had thwarted the Treasurer, not only did not have these deductions curtailed in November 1964, but went on to enjoy them throughout the period of the transaction.
What is the remedy? Instead of a complete antidote to that racket, we get an idea that does not find the slightest expression, that is not supported by a single word, implicit or explicit, in the Ligertwood Report. For the first time since 1936, people who have land to build on or who own freehold land and wish to let it, can have premiums for their lease transactions exempt from income tax. Premiums demanded and received - not merely in a lump sum at the commencement of the transaction but in instalments throughout the period of the transaction - categorised according to an archaic and conservative notion as capital payments, are no longer taxable as income, and they are not . deductible when paid by the tenant from his income. I protest at the spectacle of the Labour Party accepting a situation in which the grocer or the butcher or the baker down the street, in the little business that he has built up for 1 0 years,- . can be subjected to the superior influence and power of the landlord in relation to the piece of land upon which he has built, and put into a situation in which he has no alternative but to accept renewal of his lease on the basis of part premium and part rent. This racket as to lease improvements that Mr. Justice Ligertwood discloses can be replaced by an equal racket of which breweries, mainly, can be beneficiaries, of exacting premiums, which’ are non-taxable in their hands, while the lessee of the premises, who pays the premium, :s not entitled to a tax deduction in respect of them.
Is this Parliament really giving thoughtful consideration to the recommendations of the Ligertwood Committee and the contents of this Bill, when we are told by the Treasurer that, in relation to partnerships, a number of sections of the community do not enjoy the advantage of income splitting. Yes, I can imagine that the Commissioner of Taxation is not in that position. I can imagine that the whole hierarchy of public servants in the First Division, or in the Second Division, is not in that position. That is an incapacity which public servants suffer. I have been reminded that some solicitors have gone on record as deprecating this situation and complaining that a solicitor cannot take his wife into partnership, or his son until his son has qualified. I happen to be a solicitor, but am I so unconscious of the privileges that I have earned by qualification to a profession as to deny the complete impropriety of taking into partnership an unqualified person as a sharer of the profits? These are the sorts of things that come about in conjunction with what I call privileges - for want of a better word - of the higher salaried public servants. They are public servants of great responsibility and great capacity; I do not denigrate them. Am I to deny that solicitors and other professional men are completely out of court when they deprecate the idea of partnerships? People in other walks of life are entitled by law to carry on their business by means of partnerships. I lived through a generation when I saw the pioneers of this country build up farms. I do not refer to my own parents, let me say at once - I never make personal references here - but I have seen farmers, employ their sons, even after their sons were married and even after they were 40 years of age, at £3 and £3 10s. a week. It is only since the war, when the Liberal Party fostered and urged partnership and profit sharing to break down the class war, that we got sons established, as they grew from adolescence to adulthood, first as partners with their fathers, and then, as their own families came on, the sons were taken into partnership, and so on. If we look at the statistics in the reports of the Commissioner of Taxation we shall see the the number of partnerships operating in Australia today. We should not be blind to the fact that it is some of the little men who are going to be. damaged irretrievably by this iniquitous legislation with regard to partnerships.
Before I leave that aspect, I point out that the same idea is germane to the sub:ject of superannuation funds. We stumped the country from 1945 until 1954 or thereabouts advocating superannuation funds for employees. We urged employers to show by that means an interest in the welfare of their employees after they had retired or had been discharged. That is why there is a special concern on the part of members of the Liberal Party to protect the principle that the funds of em*ployees shall not be subject to an imposition of 10s. in the £1. What is the position with regard to partnerships? I believe that since the 1920’s there has been in the law a provision that if one member of a partnership has not the real control of his share of the income, special taxation provisions should apply to it. In 1943, 22 years ago, Mr. Chief Justice Latham had before him
Coldstream’s case in which it was put forward that a partner whom I shall call A did not have the real control of his income. The law provided that if partner A did not have the real and effective control of his income a tax should be imposed upon the other partners who did have the real and effective control of his income. The Chief Justice said that you came to a point where you had to affirm one of two propositions, first that a partner did not have the real control of a particular share of income, and secondly, that the other partners did have such control.
From 1943 until June 1961, when Mr. Justice Ligertwood delivered his report - nay, until November 1964, that being the time that the Treasurer (Mr. Harold Holt) took to consider the matter - people who acted upon that decision were characterised as tax dodgers. Mr. Justice Ligertwood, recognising that situation, did not say that you should impose a tax of 10s. in the £1 on that share of income. He said that you should find the party who had not the real control of the income and tax his share of the income as if it were added to the other partners’ shares. The resultant rate should be imposed on the dummy partner. Let me give an illustration. Suppose that a man named Smith and his wife have a son, A, aged 26, and a daughter, B, aged 10. They have a partnership of £4,000. According to Mr. Justice Ligertwood’s proposal, the share of daughter B would be added to that of the other three partners and each would be regarded as getting not £1,000 but £1,333. Mr. Justice Ligertwood’s proposal was that the daughter B should be taxed as if her share had been distributed to the other partners and that she was bound to pay tax on that sum. The result, based on his proposal, would be that instead of paying tax of £104 on that fourth share she would pay tax of £252. That proposal has not been adopted. Mr. Holt’s proposal is embodied in the law that was enacted in November 1964. This means that the daughter B shall pay tax not of £252, but of 10s. in the £1, or £500, subject to the proviso, in the language of the statute, that where the Commissioner is of the opinion that by reason of special circumstances it would be unreasonable that this section should apply to any income, this section docs not apply to that income.
That is to say, the Parliament solemnly says that if a partner has no real control of his income he shall be subject to a penal rate of tax of 10s. in the £1, but a discretion is given to a departmental officer to provide relief from that rate of tax if in his opinion it is not reasonable that the provision should apply. I could not find an example of more vicious legislation in relation to the business transactions of an ordinary man. I anticipate the answer that Mr. Justice Ligertwood pointed out that, in addition to these arrangements with regard to partnerships, people were declaring trusts for shares of partners. He gave a vivid instance of four brothers entering into a partnership and managing to create, by use of their various children, some 34 segment trusts. According to my recollection of the figures and speaking in good round terms, I think I am correct in saying that whereas the income tax which normally would have been imposed was £34,000, it had been reduced to either £11,000 or £7,000.
Insofar as these matters are spawned with the intention of avoiding tax, I have repeatedly emphasised that section 260, which enables the Commissioner to void any transaction that is made with the intention of evading or altering the incidence of taxation, is one of the strongest anti-evasion sections in the income tax law. But if the law needs strengthening in this respect, then let us strengthen it. Why not provide that if trusts are declared in relation to partnership income for the purpose or with the intent of avoiding income tax, they shall be void as against the Commissioner of Taxation? Then, if a person maintains that a partnership has been entered into for the ‘general purpose of making provision for a family, he will have a right to go to a court and seek the decision of an independent judge according to practice and procedure which, I should have thought, it was traditional not to deny to any person in a British country. But that is not the procedure which has been adopted. There is no rule of law to be administered by a judge, acting impartially in public, so that if the case of X was dealt with by the court, from the published law reports the whole community would know what had been the interpretation in that case. Instead, we have reached the stage where a Liberal Government, supported by the Socialists - perhaps unwittingly but probably for the ultimate aggrandisement of their power to redistribute by departmental means the wealth of the country - imposes a penal tax of 10s. in the £1 which may be remitted if, in the discretion of the Commissioner of Taxation, it is not reasonable that the provision should apply. This is done in secret, done in pursuance of a primary obligation to raise revenue according to the Budget proposals; done with complete power to discriminate between A and B, and done in such a way that every taxpayer in the country, if he wants to complain, must come to Canberra with his tax adviser and solicitor to appeal for a reconsideration either to the Commissioner or - this is put before us as an alternative that should be acceptable - to another administrative agency, that, is, a board of review presided over by a chairman, who is an executive officer of the Department and with two other members, usually a solicitor and an accountant. The point about that is that although the boards of review perform a great function, and, in the main, perform it with great satisfaction to the parties concerned, they are merely other tribunals, substituted for the Commissioner, whose purpose is, not to interpret a rule of law but to exercise a discretion.
I want to devote the remaining 10 minutes of my time - I regret that I feel bound to speak at length on these matters - to superannuation funds. Senator McKenna referred to the complexity of our tax laws. This is a thoroughgoing disgrace to the Treasurer, to the Department and to everybody who has responsibility for it. The Ligertwood Committee was set up for the purpose of simplifying the taxation laws, so long as it made no recommendations which would alter the extent of the tax burden and the tax revenue available to the Treasurer. But it became involved in these evasion questions and that objective has gone by the board. Even people as acute as Senator McKenna now despair of maintaining a running understanding of the income tax law.
We find the first provision regarding superannuation in section 23ja. It relates to self-employed persons. As to that, Mr. Justice Ligertwood reported that no instance of evasion had been brought to his notice. Therefore, there has been no proposal before the Parliament dealing with that kind of superannuation. The next type of superannuation - employees’ super.annuation - is dealt with in section 23f. When this legislation was brought in we were told that it was necessary to have discretions, so we find embedded in the legislation a discretion in the Commissioner of Taxation. The running theme of section 23f is that if a trust deed complies with certain conditions it shall be exempt from tax. The original legislation referred to action conditional on the Commissioner of Taxation being satisfied that the deed complied with the conditions. In the recent amendments which he accepted, the Treasurer has been able to delete that discretion. But now the situation is this: You comply with the nine conditions now as a matter of law, but the Commissioner has a discretion, with any that do not comply, to make fish of one and fowl of another. He has discretion, even in the case of non-compliance, to say: “ I am satisfied that it is all right with A, but it is not all right with B “. Take the case of a fund the income of which is, say, £50,000, which has been built up over a number of years and upon the benefits available from which employees are from day to day and from year to year expecting to rely upon in their retirement. Whether the fund gets £50,000 this year or the income is reduced to £25,000 depends upon the discretion of the Commissioner. To my way of thinking, the first thing that we should examine thoroughly in a case like that is whether the appropriate principle has been adopted in the first place; that is to say, whether it is proper to apply a penal rate of tax to the income of the fund because some of these conditions have not been complied with.
I will give one example. One of the conditions is that the employer shall make a contribution to the fund in every year. Suppose the fund has been going on for over 20 years and the employer gets into a situation like that of H. G. Palmer (Consolidated) Ltd., but does not bite the dust and this year finds it completely impossible economically to make a contribution. That fund becomes, in law, exposed to an impost of 10s. in the £1. It is saved from that situation only if the Commissioner of Taxation, in his discretion, exempts it. Suppose that, instead of there being this pettifogging administrative interference, the employer says: “ 1 am finished. I am not contributing any further. There is £40,000 in kitty. This fund has either to go on or be distributed “. He goes to his solicitor and finds there is no provision to distribute; the fund has to go on under the terms of the deed. He then says: “ I am not contributing any further “, but gets into holts with the Commissioner, who says: “ For one year or two I would let you off, but if you are not going to contribute any more the impost will be 10s. in the £1.”
– It is not suggested that the Commissioner of Taxation would aci capriciously, is it?
– He would act according to his discretion, an insight into which neither you nor I have. The principles that appear good to him in the governance of the fund are completely unknown to me and undreamed of by you. Until it is written into the law and we have the spirit to defend it, the workers, who should enjoy that fund, are going to be penalised unless the Commissioner’s discretion is exercised in their favour.
– I take it that he would act on sound principles?
– That is as it may be. Then we come to a fund as to which I am seeking enlightenment. I will continue to seek it until I exhaust the patience of the Senate today. Section 79, without any recommendation from the Ligertwood Committor and without any explanation of the policies it puts into force, enables any single person or combination of persons to create a retirement fund. One of the conditions that is applicable to it is that the benefits shall be reasonable and the fund shall not be excessive. The Commissioner has, through one of the published information bulletins that give satisfaction to the Leader of the Opposition and, I imagine, some solace and consolation to Senator Cavanagh, who sits behind him, put it out that he will regard as reasonable a fund that builds up a lump sum which is roughly about seven times the annual earnings over the last three years, with £40,000 as the upper limit, or a pension with ali tipper limit of £5,000. He goes on to say that he will consider people under 35 years of age to be not unduly thrifty if they put aside £400 a year to this fund; between the ages of 35 and 55 years, £800; and in the case of people like mc, above 55 years of age, £1,200. 1 bring these matters to notice because I hear from around me the murmur: “ Very good “. I have friends who would say: “ Very good “. I think I could benefit to some extent from such provisions. 1 am bringing them forward now to rivet the Labour Party in approval of them. If they are proper to gain the trust of Parliament, people can exercise them with stability. But I question the principle under which the Commissioner of Taxation is given the right to determine these scales when the Parliament allows a deduction of £91 for the first child and £65 for the second, and in relation to superannuation payments and life assurance premiums places the upper limit on tax deductions at £400 irrespective of the age or income of the taxpayer. We have had the absurd spectacle of the Leader of the Opposition repeating what the honorable member for Melbourne Ports (Mr. Crean) said in his second reading speech. He said that the erosion caused by deductions was making a farce of the system of graduated income tax.
Reference was made to members of a superannuation fund seeking exemption from tax or a special deduction equal to 5 per cent, of the net cost of the assets of the fund. As to the excess of 5 per cent., it is taxed at 10s. in the £1. Where did that idea come from? On whose policy was that put forward? Today the Parliament will say whether or not it approves the exercise of the Commissioner’s discretion in relation to these funds, not in any particular cases but as set out in a public information bulletin. (Extension of time granted). 1 am obliged to the Senate for granting an extension of time. 1 have been tedious but persevering. I had curtailed my remarks to close on a specific point. I want to add only that I have found such matter in this Bill that I would consider it an appalling pity if the Senate did not refer the measure to a select committee for a report by 31st March. Such a select committee should sit purposefully from day to day. The criticisms of and objections to this Bill are of such fundamental importance that I would be prepared to sit on such a select committee from day to day so that, by earnest consideration, something of which the Parliament could be proud might be presented within a month or six weeks, even allowing for a Christmas vacation. The proposal that was advanced by my colleague the honorable member for Bradfield (Mr. “ Turner) and supported by the honorable member for Mackellar (Mr. Wentworth) and the honorable member for Sturt (Mr. Wilson) and I think by one other member of the House, of Representatives did not find any favour with the Opposition and I was hopeful that the Senate would exercise the opportunity to move for the appointment of a select committee. The matters I have touched upon involve principles of fundamental challenge, and I make no secret of my objection.
I am a solicitor. It is fashionable to talk of solicitors advising clients to dodge taxes. It is popular jargon to refer to accountant tax dodgers and so on. I affirm that I criticise the Treasurer for his delay in closing up the tax rackets’ when they were disclosed by the Ligertwood Committee in June 1961. I criticised him in November 1964 for imposing penal taxes, at the discretion of a departmental officer, on family transactions such as I have mentioned including partnerships and family trusts, and on superannuation funds. The principle behind this is of enormous importance. The imposition of a penal tax could place such a penalty on the beneficiaries of a fund that I would think a select committee could well serve the Parliament and, through it, the public interest by introducing equity into income tax law.
I have said that the Commissioner of Taxation has announced that he considers a limit of £40,000 on a savings fund would be appropriate under section 79. The Com-, missioner has a discretion in that matter. He has set out information to that effect in the public information bulletin in relation to the ordinary case. But the Commissioner has made no secret of the fact that there have been cases already in which he has exercised his discretion to approve a figure almost double £40,000. He has made no secret of the fact that in some cases the beneficiaries have enjoyed the benefits arising from his decision to that extent. If the members of the Australian Labour Party in this place will not examine this matter further, they must go to the country on the basis that they approve the Commissioner fixing these scales and renouncing Parliament’s right to do so. I shall not vote against the second reading of the Bill. I shall abstain from voting in a division on the second reading only because the Opposi– tion has stated that it is not opposed to the measure and will not divide the Senate on it. But when the Bill has passed the second reading, I propose to vote for the appointment of a select committee.
– Naturally, I have considerable misgivings about rising to speak on this Bill because I do not know very much about the subject matter. But I was fortified a little when I listened to the Leader of the Opposition (Senator McKenna) because with all his years of experience and legal training, he said that he does not know very much about it either. Actually, this is a question of attitudes of mind. It is not a question of detailed examination of fine points of law. I am being very respectful when I say to Senator Wright that I admire his mastery of this legislation and its complexities. I cannot hope to emulate him and I do. not intend to try. I do not think this is a field for a parliamentarian in the normal sense of the word. . It certainly could never be a field for me. But there are broad attitudes in this field of taxation legislation which concern all of us.
The proposition that we should be able’ so to examine the law in all its ramifications as to be masters of the law is one that I cannot support. After all the Senate” is: charged with examining many matters affecting the general welfare of the community of which taxation is only one. The Taxation Branch of the Treasury has on its staff many competent and able men. Their only job is to examine the taxation laws. It is a full time job for them. For a senator, it must be only a cursory business so what I have tried, to do is to get myself clear on certain principles and attitudes I would adopt to. this Bill and to taxation legislation generally. I am in substantial agreement with the re- . marks of the Leader of the Opposition (Senator McKenna). I find myself to be more in agreement with him than I do with my friend and colleague, Senator Wright. Nevertheless, I appreciate the great strength - of feeling that Senator Wright has on this, subject; it flows out of a deeper knowledge and maybe out of a deeper understanding. .
One of the propositions that I do not support is that the Taxation Branch as such is out, in effect, to get everybody and is’ basically unfair. Nobody has said this outright, but I want to put my point of view. 1 do not believe that that is the attitude of the Taxation Branch. I believe that those who fundamentally are unfair and who are out to catch people are the tax evaders. 1 think it was Senator McKenna who said that it was the people who have great resources, great wealth, who are out to evade taxation and who do so much more effectively than people of much less substance like myself, most honorable senators, and average members of the Australian community. I am on the side of the Taxation Branch more than on the side of people who make great claims about unfairness and injustice but who in many cases, in the complexity of the situation, take up a position where they can perhaps benefit themselves by some, form of tax avoidance.
X believe that the Taxation Branch strives to be fair, to explain and to understand. It publishes information bulletins. This is an imperfect world; nobody can do everything he wants to do. The impression I have gained after having done a little bit of work on this problem is that the Taxation Branch and its officers are trying very hard to be fair to the general community and to catch tax evaders. I support that general pattern of behaviour. Therefore, I start on the premise that the Taxation Branch is not trying to grab power, is not trying to be unfair, is not trying to introduce oppressive legislation and is not trying to go behind the Parliament, but is trying to get in the taxes that it believes the community fairly should pay.
This subject has been referred to as an exceedingly complex one. People speak about the need so to draw the law that it can be completely judged by the law. I suggest that in the field of taxation that is not easy. It is not that the Taxation Branch is being wilful but that we are living in an extremely and increasingly complex situation. I propose to quote one or two facts which illustrate the complexity of this legislation. Since 1949, of 60 appeals that have been made to the High Court of Australia against decisions of Federal Taxation Boards of Review well over one-half of the Boards’ decisions were reversed. Of about 100 income tax appeals which came before the full High Court in the same period the court unanimously upheld 25. The full High
Court reversed the decision of single Justices of the High Court in no fewer than seven appeals, and decisions of the High Court were reversed by the Privy Council in two out of three appeals heard in the same period. Therefore, I think it is fair to say that it is not easy to draw the law so distinctly that we can be quite certain that all situations can be clearly covered. There is a wide area of complexity which leaves the way open to misinterpretation and confusion.
As I look at this legislation - I suppose as an ordinary taxpayer - I see certain things which affect me. The first question 1 ask myself is this: Is the revenue being affected adversely or otherwise? Secondly, is any social justice or injustice being done? Does the legislation bear more heavily and unfairly on one group than on another group? Thirdly, is there any infringement of the rights of the Parliament or of the people? Fourthly, to what extent are we really involved in monetary policy as distinct from revenue collection? Mr. Justice Ligertwood said very clearly that at the time of this inquiry the payment of taxes amounting to approximately £15 million was being avoided, with a possibility of that amount growing. What the Commissioner of Taxation has set out to do- perhaps not as perfectly as Senator Wright and other people who have had greater experience in the law would like - is to try to recover the sum that is being evaded. I can only support the proposition that the Commissioner, acting within his knowledge, which I assume to be greater than mine, is the best person to help to draw up legislation which will prevent £15 million a year passing off.
– Will the honorable senator repeat that statement? Does he say that the Commissioner is the correct person to draw up the legislation?
– I should imagine that the Commissioner is the best person to advise on the drawing up of legislation to avoid £15 million a year being lost.
– I agree - he should advise.
– Another question I pose is not easy to answer. I refer to the question as to whether social justice or injustice is being done. I am sure that within our taxation system at any given point of time there must be some element of social justice or social injustice. There must be some people who are not as fairly treated as are others. This is a matter in relation to which I should like to spend much more time and effort in order to gain more knowledge so that I might make a more useful contribution.
I find it very difficult to determine whether there is any infringement of the rights of the Parliament and of individuals. I agree with Senator Wright when he states that, if it could be proved that there is any infringement and if we could be sure that it could be avoided by passing some law that would work, we should try to do something about it. I would not want to see a law that would not really work, which was open to challenge and which broke down.
I can only touch very briefly upon the question as to whether monetary policy is involved, lt is fair to say that the Treasurer (Mr. Harold Holt) has agreed to fairly substantial modifications of the legislation which are designed to improve the position of superannuation funds. Such funds increasingly are a repository for people’s savings. Increasingly money is being accumulated in such funds, and it must be safeguarded for the future. This is a bona fide part of Australia’s pattern of financial resources. I believe that in looking at superannuation funds we are looking at an area in which monetary policy now has, and in the future will have, a distinct effect on the collection of revenue. It is said that the taxation authorities have no regard for monetary policy. But they form a branch of the Department of the Treasury, and 1 should be exceedingly surprised if the implications of monetary and economic policy did not have a general effect on legislation that was designed to raise revenue. Indeed, I am sure that, if any honorable senator ever found himself appointed as Treasurer, he would think about the effects of monetary policy in this field, not only in the short term, but also in the long term. Therefore, I should imagine that superannuation funds would need to be looked at increasingly from the point of view of giving protection to a growing proportion of the savings of the Australian people. Any legislation that was introduced would need to be looked at in that light.
Much has been said about the report of the Ligertwood Committee being presented at a certain date, about legislation becoming effective three years later, and about people having had an opportunity in the meantime to do things which perhaps otherwise they might not have got away with. That may be so. It is also true that a government cannot introduce retrospective legislation in this respect. It would equally be true that most people would be engaged in bona fide arrangements. I imagine that what we must do is to live with the circumstance that in a community like this certain people unfortunately will make some gains. But in the broad sense, other people would be very adversely affected if we set out to catch everybody. By being a bit repressive here or a bit oppressive there in order to catch some who temporarily might be tax evaders we might also do great harm to many genuine people. I believe that fundamentally not all people are tax evaders but that most people are genuine. I believe that the Commissioner of Taxation is trying very hard to give people a fair go.
The Commissioner has been good enough to make one or two comments about discretions which perhaps I should mention very briefly. I have done a little bit of work on this subject. I shall quote some of the remarks that have been made about discretion, upon which a lot of things turn. If the law is complex and cannot be defined accurately, in order to avoid tax evasion and to be. fair to people in that way we should give to the Commissioner what I choose to call increased managerial and executive power. This is an important matter. Is he being fair or unfair? In certain areas this was disclosed. In paragraph 742 of the report of the Ligertwood Committee it is stated -
We propose that certain authorities nml discretions should be vested in the hands of the Commissioner . . . because of the difficulty of providing precise legislation in some other form to ensure that bona fide superannuation funds enjoy exemption whilst preventing exploitation of the exemption by other superannuation funds.
In the legislation of November 1964 the Treasurer defended his position. He explained why he had permitted increased discretions and why the Commissioner had seen fit to accept them. This is because the legislation is so complex and because those who are seeking to exploit loopholes are people of specialised knowledge and skill - astute lawyers, accountants, businessmen and taxation specialists. It is necessary to produce complex legislation to meet the situation, the Treasurer said, and because the broad terms of particular provisions could work unfairly and unreasonably in individual cases, the Commissioner was given a discretion in many cases to soften the effect of the legislation. The Treasurer felt that such action was justified.
Again, in 1965, the subject of discretions was referred to in much the same terms, and in more specific terms in relation to superannuation funds. The Commissioner was good enough to meet some of us and to discuss some problems involved in this legislation. It was clear from our discussions that the Commissioner and his staff did not really want increased discretions; but they felt that there were certain cases where they had to have added discretions. I think it is fair to say that they also felt - and 1 think Senator McKenna made this point - that with more experience of the legislation, as time passed the legislation could become more precise. I am sure that the Commissioner wants that result. In referring to discretions this general comment is made -
In the main, discretionary powers enable the Commissioner to follow a course favorable to the taxpayer.
That is also my conclusion, in the main. In the end, discretions are the main burden of argument. The law is hard to define accurately because the matters dealt with are increasingly complex. Therefore the Commissioner is given added discretions and makes more decisions. Does he make those decisions with the genuine interests of the community at heart? I think so. Should he have those discretions? I think he should. Does he want them?
– He decides in favour of the battler.
– I trust that Senator Benn is correct, because I am a battler. I turn now to the subject of tax reforms, which was briefly referred to by Senator McKenna when he adverted to the remarks of Mr. Crean in another place. Tax reforms have always interested me greatly. I shall read to the Senate one or two extracts from a recent publication, to which Mr. Crean also referred. It is called “The Treasury under the Tories “ and its author is a Mr. Brittain. Mr. Brittain makes a most interesting series of comments on tax reforms. I believe the real heart of this problem is the tax structure. Until we make a broad attack - not now, but by total re-examination - on the methods of revenue raising and their total effects, I believe this situation will become more and more complex and we will have more and more cases warranting tax reforms.
Mr. Brittain writes that Treasury officials have always been concerned with the level of taxation in the United Kingdom. Until 1962- a continuous study was not made of the various methods of raising revenue. It seems that a very similar state of affairs exists in Australia and it is unlikely that that state of affairs could have survived but for an implicit belief in the old slogan: “ The object of taxation is to raise revenue.” Certainly one of the objects of taxation is to raise revenue, but I believe that it has also become increasingly an economic policy device. The idea of using the tax structure to favour one type of economic activity as against another type is still new and revolutionary, not only in the United Kingdom, but also here. I believe that taxation must be examined as an economic tool as well as a means of raising revenue. Mr. Brittain has made this comment -
It is said that one reason why the tax system is not reformed is its very antiquity. It has emerged gradually over the centuries; no war or economic crisis has ever been able to destroy it. There has never therefore been an opportunity of starting from scratch. Company taxation emerged as an offshoot of personal taxation, and the legal definition of income emerged long before capital gain became a problem.
Mr. Brittain’s comment is that generally, over many fields, it is much easier to build a new tax system than it is to reform an old one, or rationalise an existing one. That is probably the true position. I do not suggest that this debate is the proper time to reform the old tax structure or to build a new one. It is a job for a long time to come, but one we ought to tackle at some time in the future.
Another comment by Mr. Brittain which has some bearing on the situation is as follows -
The notion of equity involved has nothing whatever to do with equality or any other view of the right distribution of income and wealth, lt does not find anything disturbing in withholding tax from wind Talis from the sale of land while struggling salary earners pay a substantial part of their income in tax.
That is a fair comment, which seems substantially true. The problem is to raise a given quantum of revenue for a purpose. The Commissioner of Taxation is not charged with examining social justice or injustice in revenue raising, but I suggest that we ure so charged. I suggest that the job of honorable senators in the end is to examine social justice in revenue raising rather than to try to be experts on tax law.
Another problem, of course, is the difficulty of achieving equality, economic efficiency and social justice. Perhaps we might be able to examine whether it is possible to arrange a new method of raising revenue over the taxation field. I hope to be able to do something useful on this aspect. The Swedish authorities have done the latest and most effective work in this field. They have totally revised the Swedish taxation structure and revenue collecting arrangements. I have written to obtain the relevant report and J will be happy to distribute it amongst honorable senators who are interested..
Taxation law is a complex matter about which J know very little. I am disturbed that I know so little about it. When I began to examine this legislation I realised that it is very much a field for experts, although it is a field in which we should become much better acquainted with the principles, as distinct from the fine points of law. I hope that we will not engage in the appointment of select committees to investigate fine points of law. Instead, we should engage on a study on a continuing basis over many years, as a vigilance group, of revenue raising methods in the first place, and secondly, of whether the methods are just or unjust in respect of members of the Australian society. We should also examine the extent to which taxation may be regarded as a weapon of economic policy in addition to its capacity to raise revenue for the general purposes of the community.
.- In speaking in this debate I desire to indicate that I shall support the motion to be moved by Senator Wright, that the matter be referred to a select committee. In the course. of this debate, some thoughtful speeches have been made on the very difficult subject of taxation. I think we all pay tribute to Senator McKenna for the thoroughness with which he studies legislation. Senator McKenna referred to the complexity of this legislation and the difficulty of understanding it.
Senator Wright also contributed a very thoughtful speech. Those of us on this side of the chamber who know him well appreciate his most- thorough-going examination of this Bill and previous taxation legislation. Both these learned legal men, Senator McKenna and Senator Wright, no doubt can tackle this legislation much more closely than those of us who are laymen. If the honorable senators found this measure so difficult to comprehend, it is therefore the right of the Senate to explore every avenue to enable it to understand this legislation as fully as possible.
Then we had the contribution made by Senator Cotton, one of the newer senators, which was also of a thoughtful character. The honorable senator indicated certain views. He expressed the attitude that it was our place to raise the quantum of taxation but not to go into the finer points of the law. That is true. But it is Parliament’s right to indicate the amount of tax which is to be raised from the people. I also think that it is only right that Parliament should know and understand, not just the finer points of the law, but what effect the legislation that it is passing will have upon the people. We are entitled to know what injustices or justices may be inflicted by the legislation now before us. I am more convinced than ever, after hearing the addresses we have had on this question, of the necessity for the Senate to know more details of this legislation.
Arguments have been raised about the purpose of the Senate. It has been contended that the Senate is the States’ House or the House of Review. But on the question now under consideration the Senate is a deliberative chamber. We should take longer over complicated matters and go into them in more detail. Therefore I feel that we should take advantage of any procedure which will allow the Senate to make a closer examination of the legislation before it, provided that by so doing we are not holding up legislation which might affect the Government to any great degree. I know that Senator Wright intends to move for the appointment of a select committee. As a layman and as one who realises the complexities of this legislation, 1 feel that if Senator Wright persists with his intention and the Senate adopts his suggestion a service will be done from the point of view of not only the Senate but also the people. In properly understanding this legislation, we shall know what we are doing in passing it. I rose to express my views on those lines. I propose to support the motion when Senator Wright submits it.
Sitting suspended from 5.43 to 8 p.m.
– in reply - I should like to thank the Senate for the’ reception it has given to this Bill. I congratulate Senator Cotton on the very balanced speech he made on some of the problems that exist in this field. To Senator McKenna let me say that I think he also gave a very balanced discourse on the proposals as the Opposition sees them. I shall reply to some of the points raised by Senator Wright but, first of all, I want to thank him for his courtesy in making his proposed amendments available to me so that 1 could consider them and seek assistance from officers of the Taxation Branch. This is a specialist field. Without their assistance, I would have found it most difficult to deal with his proposals, and I again thank him for his courtesy..
First, let me refer to Senator McKenna’s remarks in relation to the taxation allowance applicable to the west coast of Tasmania. Like the’ honorable senator, I am a Tasmanian and his remarks aroused my interest. Irrespective of whether additional taxation allowances are made applicable to the west coast of Tasmania, we have at least set out to lessen the isolation of the area. I look forward to opening very shortly a DC3 airport at Queenstown. Such an airport is something I had thought would never be possible. Queenstown will have a DC3 air service. As the honorable senator knows, there are airports also at Strahan and Zeehan, although the Zeehan airport is rather limited in its scope. With these added amenities, we hope to relieve to some extent the situation on the west coast, even if we do not succed in having the zone allowance increased. I make those statements as a Tasmanian. -
I agree entirely with Senator Wright that we stumped the country on superannuation in the days from 1943 to 1946. We then were firm believers - we still are - in superannuation. But we never envisaged that the wise boys would move into this field and so misuse the superannuation system which we had evolved that they could avoid and evade taxation to the extent of £4 million a year. As has been mentioned to the Senate, the legislation before us is to deal largely with the matters raised by the Ligertwood Committee, which pointed out that as well as the avoidance’ and evasion of taxation in the superannuation field to the extent of £4 million a year, there was also avoidance and evasion of taxation in the field of partnerships and trusts to the extent of about £5 million a year. This legislation is designed to close these gaps.
I was interested to hear Senator Wright refer to section 260 of the Income Tax and Social Services Contribution Assessment Act, to which he has referred before on a number of occasions. I can only say to him that the Taxation Branch has had little success in this field. It does not have the confidence in this section of the Act which he seems to have. He seems to think it provides an effective method of dealing with an avoidance and evasion of taxation; the experience of the Taxation Branch has been quite the opposite. I remind the honorable senator that above the Commissioner of Taxation, who has the discretionary powers given by the legislation, the discretionary powers referred to by the Taxpayers Association of New South Wales and the discretionary powers mentioned in the report of the expert Ligertwood Committee, is an independent Board of Review. The Commissioner knows quite well that this Board has full authority, when an appeal is made to it, to set aside completely the judgment of the Commissioner and to replace that judgment by its own. Apart from the fact of the very high standing of the Commissioner and his staff, every officer in the Branch knows that the Board of Review is above him. Those facts should be sufficient to refute any suggestion that a decision may be taken lightly or in a fashion which does not take full cognisance of the facts.
Now let me deal with some of the points relating to the legislation which were raised during the course of the debate. As to superannuation funds for employees, 1 say to the Senate quite clearly that eight of the nine tests laid down by law are almost identical with those recommended by the Ligertwood Committee - the expert Committee which was set up to find ways and means of closing the gaps in the legislation which permitted tax avoidance amounting to £14 million. Surely no one will challenge the qualifications of the members of the Committee. In paragraph 743 of their report they expressed their opinion very clearly that the tests laid down are tests which a normal bona fide superannuation fund can readily meet. Let me repeat that: The members of the Committee expressed very clearly their opinion that the tests are tests which a normal bona fide superannuation fund can readily meet. The Ligertwood Committee meant those eight tests to apply to normal iona fide superannuation funds. The Government gave ample time for interested bodies to consider those tests, and for three years not a single voice was raised against any one of them on behalf of the traditional type funds which we have known in Australia for so long.
As to the ninth test, that became necessary when the Government decided to initiate an allowance for public superannuation funds. The Bill proposes a modification of the ninth test to a degree which will enable it to be met by any normal bona fide superannuation fund. Any further modification is unnecessary in the interests of those funds. Removal of the ninth test cannot bc contemplated because it would open the way for tax avoidance.
The discretionary power in relation to these funds has come in for a lot of criticism. Paragraph 743 of the report states without any equivocation that discretionary powers are unavoidable if bona fide funds are to be protected and tax avoiding funds checked. Dire consequences for employees’ superannuation funds of the traditional type have been predicted, but what is the truth? Are these funds being inhibited by the new legislation? A Deputy Commissioner of Taxation in one State alone has had referred to him more than 300 deeds to establish new funds since the 1964 legislation became law. Two of our largest public companies have recently announced the establishment of superannuation funds for their wages employees - a field of superannuation scarcely touched by them before. On these facts, where is the evidence of inhibition?
If anything would be likely to inhibit bona fide funds, it would be the introduction into law of hard facts and fast rules and the rigidity that goes with them. The only funds that will be inhibited will be those used for tax avoidance purposes. They will have an opportunity to conform with reasonable tests. If funds of that type will not conform, then they will be taxed, and every honorable senator should support that point of view. This Government will not apologise for taxing that class of fund but it has and will continue to provide tax exemption under reasonable conditions for the traditional type of bona fide fund.
In this chamber and elsewhere there has been talk of the villainy of the discretions, but nobody has suggested that superannuation funds for self-employed persons have not worked well for 13 years. Yet the Commissioner of Taxation has, during all those years, been clothed with much the same kind of powers regarding these funds as are now being questioned in relation to private and public superannuation funds. In that period of 13 years there have been four different Commissioners of Taxation. There has been no suggestion that any one of them has exercised his powers in anything but an enlightened and impartial manner. It goes without saying that discretions would have been avoided if they could have been. Nothing has so far been suggested to the Government that would avoid the discretions and at the same time permit the law to operate in an equitable and flexible manner. This is true not only of the discretions relating to superannuation funds but also of the discretions in other areas.
The discretions are not unpredented and they are not uncontrolled. It has long been the practice of Parliament to vest important discretions on taxation matters in the Commissioner of Taxation and his decisions are, of course, subject to review by a Taxation Board of Review which can substitute its own opinions for his. If he is arbitrary or irrational, his decisions can be reviewed by the Board. Boards of Review go over matters again right from the beginning. They take evidence, they sift and weigh the facts and they give their decisions in writing. These decisions are published. I have no doubt that the possibility of the income of any bona fide superannuation fund being taxed under this legislation is so remote that it can be dismissed out of hand. But the need for strict tests is imperative if the exploitation amounting to millions of pounds a year, which was referred to by the Ligertwood Committee, is to be avoided.
The Government has always supported genuine superannuation schemes and will continue to do so. The phenomenal growth of superannuation during this Government’s term of office sufficiently illustrates this point. It is said that the Commissioner of Taxation is being constituted as the controller of superannuation funds. There is no sound basis for this assertion. The law says what tests an employees’ fund has to meet, and the fund is the master of its own fate in that respect. It might meet the tests in its own way, although the Commissioner follows the practice of giving advice if he is so requested. If a fund finds that it cannot meet all the tests because of its complex constitution and its particular circumstances, it can apply to the Commissioner for the exercise of a discretion. Anyone who has taken the time to study impartially the Commissioner’s information bulletin on the matter will see no evidence of a harsh or restrictive attitude on his part.
The debate has ranged widely over matters not covered by the Bill, or only formally referred to in it. Trusts and partnerships have been referred to. So have leases. In regard to leases, it is true that the Ligertwood Committee did not recommend the discontinuance of the provision affecting premiums. What it did do, however, was to refer with clear approval to the view that it is not possible to assert that a true premium is rent in advance, and it also clearly subscribed to the view that such a premium is of a capital and not of an income nature. It also queried why many complex provisions regarding premiums were necessary. I think that the very clear inference to be drawn from the Committee’s observations is that it was deterred from recommending the repeal of the provisions only by reason of the fact that they had been in the law for 25 years. The Government does not subscribe to the view that provisions which permit tax avoidance should be retained merely because they have existed for a quarter of a century. This would have been the position if the Government had discontinued the improvement provisions and had left the premium provisions standing.
In regard to partnerships, we are, in fact asked why we did not adopt the Ligertwood Committee’s recommendations. The answer is that they could be ineffective. All that would have to be done would be to ensure that each partner lacked control of some small partnership income. The proposed provision simply would not have worked. Under the Committee’s proposal the rate of taxation could have been much higher than 10s. in the £1. But I shall have more to say about that later. I acknowledge that the partnership provisions are complex, but they have to be. Members of the legal profession in the Senate know very well that nowadays partnerships are organised in the most complicated ways and often involve a series of trusts. If this was not the position the provision could, of course, be much simpler.
As far as trusts are concerned, I must say that the Government was confronted with a most complex and disturbing situation. There are many trusts of a completely unobjectionable nature, as far as income tax is concerned, and the Government did not want to touch those in any way. They will not, in fact, be touched by this legislation. It has been suggested that it would be a simple answer to the question of multiple trusts which have been set up for tax avoidance purposes to consider the aggregate income of the trusts for rating purposes. There is a lot of woolly thinking about this, but no-one suggests how it could be done adequately and equitably.
The position of an aggregation was not overlooked by the Government, but it seems to me to be well nigh impracticable. One reason is that the beneficiary’s entitlement to accumulated income is often dependent on some contingency. It is impossible to predicate with any certainty at all to whom the income will eventually go. In other cases the distribution of accumulated income to a particular beneficiary or to a beneficiary selected from a particular class may be at the discretion of the trustee. In addition, whomever one selected to bear the liability of the aggregated tax, there would be the situation of calling upon one person to pay tax on income legally derived by another. The advice which I have received is that there are grave doubts that this sort of thing is constitutionally valid. As to superannuation funds, the proposed rate of 10s. in the £1 will, in practice, be. payable only by a fund that fails to satisfy the test in the law in such circumstances that the Commissioner is unable to exercise a discretion in its favour. Funds such as we have known for many years will have little, if any, difficulty in meeting the position either completely or within the leeway allowed under the law and envisaged by the Ligertwood Committee when it recommended that the Commissioner should have a discretion to protect these funds from being taxed. Any employer-employee fund that has to pay the 10s. rate will be of the type of which the Ligertwood Committee referred as flagrantly exploiting the exemption available to bona fide funds. Where a fund is to be taxed, it is impracticable to tax it at anything but the flat rate, because the income of the members is, of course, variable. The rate proposed is the same as that which applies to income accumulated in private companies and it is something which can always be avoided, if the fund alters its rules and practices so as to qualify for the exemption.
As to trusts which might be taxed under this legislation, the rate of tax has to be high to be effective. The rate of 10s. in the £1 was recommended by the Ligertwood Committee on the income of certain trusts. It is the same rate as applies to the undistributed income of private companies. Trusts have been used very extensively to avoid undistributed income tax without the dividends distributed bearing any or any substantial tax liability. Frequently, the dividends are returned to the private company in the form of loans. The rate is necessary on the accumulated income of trusts if this type of tax avoidance is to be frustrated. If it were to be lower than 10s. this avoidance would go on. Moreover, a lower rate would provide a great inducement for taxpayers whose personal rate may be as high as 13s. in the £1 to effect substantial tax savings by arranging that some of their income be transferred to trusts for their benefit and taxed at the lower rate. It is extravagantalmost, I would say, irresponsible - to suggest that the rate will apply to trusts that do not have tax avoidance features associated with them. There are many ways, all of them quite unobjectionable, in which these trusts can, by getting rid of their tax avoidance features, leave themselves unexposed to the 10s. rate. The Government would be happy to see this done in these unobjectionable ways. In its view, the effectiveness of the legislation will be measured not by the revenue that it produces of itself but by the fewness of the cases to which it has to be applied as a means of defeating the tax avoider.
As to partnerships, these have been very often used in conjunction with trusts for tax avoidance purposes. If the rates were to be different on the accumulated income of trusts and partnerships, anomalies would undoubtedly occur. I would stress that there is no reason why any partner should bear this rate. It can be avoided by giving the partners control of their shares of partnership income. If the partners are under 16 years of age, it can be avoided by exclusion from the partnership of these very young partners. Let me interpose to ask: Why does one put in partners under 16 years of age if it is not to avoid tax?
– It is not always.
– Of course it is.
– Probate is one reason.
– Probate is largely a State matter. Whatever happens, a partner under 16 years of age cannot have effective control of income. Should there be any circumstances which may not be spelt out in the Act but which justify non-application of the 10s. rate, there is access to the discretionary power exercised by the Commissioner or by a taxation board of review. As in the case of trusts, the aim of the rate is not to produce revenue directly but to discourage tax avoidance practices. In addition, I would point out that if the rate were lower there would be an incentive to partners deriving incomes in excess of about £4,400 to admit relatives to partnership but not to give them control of their shares of the partnership income.
The Government has made a painstaking effort to prevent blatant tax avoidance. It is a complex matter in which the varieties of circumstances, because they are almost infinite in number, cannot be encompassed iri precise provisions, but the Government has left open escape routes for persons whose arrangements do not involve the avoidance of tax. The great majority of the community which meets its. tax obligations without employing tax avoidance devices has a right to expect the Senate to endorse the steps taken by the Government to frustrate the tax avoider.
Question resolved in the affirmative.
Bill read a second time.
.- In accordance with the notice that I have circulated, I move - (1.) That the Bill be referred, for consideration and report, to a Select Committee to consist of seven senators to be appointed in a subsequent resolution. (2.) That such Committee have power to send for persons, papers and records, and to move from place to place. (3.)’ That the Committee report to the Senate not later than 31st March 1966.
I shall make only a brief speech in support of the motion, because I have been heard at length in the second reading debate. If there is anything that strengthens my claim that this Bill should not be passed without further consideration it is a speech of the Minister for Civil Aviation (Senator Henty) in reply to that debate. The Minister acknowledged that he had been furnished on Friday last with the specific terms of my proposed motion. He will acknowledge that he had my own informal indication of the motion a week ago and, as soon as decisions were made in my party, I circulated to all senators my own notes upon the subject which’ disquieted me. By so doing I hoped that all senators would be enabled, if ‘they saw fit, to become familiar with the principles - not as my esteemed colleague, Senator Cotton said, the fine points of law. I am not interested in those in the slightest in this debate. My purpose is to give to the principles underlying this Bill the scrutiny that, having failed elsewhere, I seek to have applied through the medium of a Senate select committee. There are such fundamental differences between the assertions that have fallen from the Minister in reply to the second reading debate and the principles that are embodied in this Bill-
– There certainly are. That is true.
– I am saying that these are such fundamental differences that they should be resolved very deliberately and after the most earnest thought. Take one statement with regard to superannuation funds. The Minister asserts that there is adequate protection for the bona fide fund. We are now dealing with two sets of funds. One is an employee fund, covered by section 23f., and the other is a general public superannuation fund - an entirely new conception under this Bill - covered oy section 79. The protection that is afforded to beneficiaries of the funds derives from compliance with nine conditions. I would be most obliged if, at some stage of the consideration of the Bill, the Minister would indicate to me which condition has been added to the eight referred to in the report of the Ligertwood Committee. In fact, the report of the Committee refers numerically only to six conditions. I have consulted the Bill iri this respect and it is my understanding that there are at least two major additions to the legal requirements which the Bill lays down for the funds to which we are referring. However, I mention that only by the way.
The protection for the funds depends on compliance with those nine conditions. However, the Association of Superannuation Funds of Australia asserts that compliance with the conditions is difficult. It makes the assertion in a statement that has been circulated. This Bill, before certain, amendments were moved by the honorable member for Parramatta (Mr. Bowen) in the other place approximately a week ago, and with which- 1- shall deal in substance at the appropriate time, did not add very much to the protection that is afforded. The Association of Superannuation Funds has said that not one fund could reasonably be expected to comply with every one of the stipulations of the nine legal conditions.
I am not concerned to support the Association’s statement. Nevertheless, it is a statement by a responsible body which I think we are not entitled to ignore simply upon the assertion of the Minister, after consultation with the Commissioner. The fact that the Government foresees difficulty in compliance is evidenced by the stress laid upon the discretion of the Commissioner. To meet the circumstances of harsh cases, it is said, a sufficient remedy lies in the fact that the Commissioner is given a discretion not to apply the relevant section. The Minister for Customs and Excise (Senator Anderson) suggests that I should confine my remarks to the subject of the appointment of a select committee. I thought, Mr. President, that I was exercising great restraint and patience, in a very difficult matter. J am addressing myself to the motion I have moved. My theme is that the Senate should subject this most contentious and complex Bill, involving a fundamental principle, to the scrutiny of a select committee.
I began with the premise that there was a fundamental difference between the assertions made by the Minister in replying to the debate and my view of the principles involved in this legislation. I contend that that fundamental difference warrants examination by a select committee, and I am illustrating my argument by a very brief reference to certain matters. As I have said, this is a complex Bill and my references therefore may be a little tedious. I repeat that the fact that the Government foresaw difficulty in complying with all the legal conditions is evident from the provision that the Commissioner has a discretion to afford relief in cases of hardship.
I turn to sub-section (7.) of proposed new section 23f. The terms of the provision in the Bill that was introduced in the House of Representatives have been slightly amended. I shall therefore tax the Senate’s patience in order to be precise. The amended sub-section is in this form -
Where a requirement specified in sub-section (2.) of this section has not been complied with in relation to a superannuation fund in relation to a year of income but the trustee of the fund staisfies the Commissioner that, by reason of special circumstances that existed in relation to the fund during that year of income, it would be reasonable for this section to have affect as if that requirement had been complied with, this section has effect as if that requirement had been complied with.
It is in those special circumstances that discretion is supposed to reside in the Commissioner. That is a protection honorable senators would require for all bona fide funds which, for reasons other than a desire to avoid tax, had failed to comply with the nine legal conditions to which I have referred.
In referring to superannuation funds, I assure the Senate that I am referring only to the pinnacles of principle. I do not propose to traverse every yard of the field, to go into every valley and to climb to every hilltop. I am referring only to points of principle. I ask honorable senators to consider the provision to levy tax at the rate of 10s. in the £1 on the income of superannuation funds. There is nothing whatever in the report of the Ligertwood Committee to suggest that that should be done. I gathered from the Minister’s reply to the second reading debate that these provisions in regard to superannuation funds derive in principle from the recommendations of the Ligertwood Committee. It is true that the Ligertwood Committee in its report referred to nefarious practices in relation to funds and gave instances of them. It spoke of directors classifying themselves as employees for this purpose. They would have the trustees of the fund purchase a special share in a company at a low price and then they would attach to that share, now belonging to the trustees, huge voting and dividend rights. By this means they were able to get from the income of the fund a sum which was greatly disproportionate to the dividends paid to other people on shares of a different class in the same company. As Mr. Justice Ligertwood has said, that was exploitation. In paragraph 739 of the report it is stated - it has come to our notice that Section 23 (j) is being extensively exploited in a manner which was never contemplated … In fact, the Section is being widely abused.
An instance of such abuse was stated by the Committee to be where the directors made an interest free loan from the company funds to the superannuation fund. The money was then invested and, in effect, the exempt income of the fund was reaping a. yield from the interest free loan. These things, of course, amount to exploitation and abuse. They should be met by legislation which destroys them immediately.
I feel that I am being fair and candid in referring to the report of the Ligertwood Committee as support for my contention that there is not one word in it which suggests that the income of the funds should be taxed at 10s. in the £1. In paragraph 744 of the report the Committee, after setting out the conditions which it thought were warranted to safeguard the revenue from abuse and exploitation, stated -
On income from a trade or business, the amount exempted shall not exceed 10 per cent, of the accumulated funds. Other income shall not exceed the income of the fund as at 30th June 1961. Insofar as it exceeds those two limits, the income is subject to taxation, but there is never a word to the effect that the taxation should be at the rate of 10s, in the £1.
The second main objection to the way in which this legislation deals with superannuation funds is that it says that funds which comply with the nine conditions are exempt; that those which do not comply with those conditions, but as to which in special circumstances the Commissioner exercises his discretion, are exempt; and that funds which do not comply with those conditions and do not attract the Commissioner’s discretion shall be taxed at the rate of 10s. in the £1 on the income of the fund. The situation is that in those funds where directors have exploited the situation so as to get, let us say, half the income into their own pockets, the other half going genuinely to the credit of employees’ accounts, we are going to divide the entire income of the fund by two, with one half going to the revenue and one half going to the persons for whom it was originally intended. If there are resolutions within the company which advantage the directors in that way, it is not the directors who bear the chief brunt of this impost of 10s. in the £1; it is the income of the fund as a whole. I say that principle is completely wrong. The principle should be that the product of exploitation and the people who have been lining their pockets by exploitation should be the subject’ of increased taxation. That is the second point of principle that I make with regard to these funds.
I come now to my third point of principle. I do not wish to speak at length in support of my motion for the appointment of a select committee, but I think it raises a principle on which the Senate has to make a decision. There is a new conception under section 79, whereby any person in the community can start to establish an investment fund for his retirement or discharge from his employment or occupation, and the degree to which the fund can be expected to grow is qualified, not by any rules laid down by the Parliament, but by the discretion of the Commissioner. He can say whether or not in an individual case the benefits are excessive or the amount of the fund is excessive. I think that the function of prescribing a scale which is proper for superannuation retirement, benefits is a function of the Parliament. I believe that the exercise of this discretion could cause great resentment and a sense of injustice, inequality and unfairness, not only as between various sections of the community but’ also as between classes and individuals in the community. I hope that I misunderstood Senator Cotton, but I understood him to say, when speaking in the second reading debate, that it’ was not a proper purpose of income tax legislation to achieve justice as between various classes.
– That was not intended.
– I am pleased to be reassured on that. All I am saying is that if we are going to create this new type of fund under section 79 and lead people to believe that they may safely go on putting aside, as an accumulated fund in the hands of a trustee, X, Y or Z pounds for their retirement, they should have, first of all, the assurance that the fund will have some basis of stability. Under this system the Commissioner exercises his discretion year by year. Secondly, he exercises that discretion on no known rule at all, except a rule that he is good enough to publish in a public information bulletin. But to make quite sure that his discretion remains untarnished he says: “ I am not applying this as a rule to govern me. It is only a guide by which the public can expect that I shall be governed “. Then he says: “I suggest that the proper upper limit of this fund is £40,000 or, in the case of a pension, £5,000 a year.” Then he adds, in a spirit of public candour: “ I make no secret of the fact that 1 have already allowed people - some two or three or maybe more - to start their funds on the basis that by the time of their retirement they can accumulate nearly double the figure of £40,000”. When we get three principles like that involved in one item of legislation dealing with superannuation funds, surely the Senate must consider that intense consideration by a select committee is required before we re-enact these provisions. We are virtually asked to re-enact them from the legislation of November 1964. The Treasurer (Mr. Harold Holt), when speaking on the second reading of these Bills in another place, said that the Government acknowledged that there was inadequate opportunity for a thorough consideration by the Committee of the whole of the legislation introduced in the previous sessional period. He went on to say -
We then said that we would consider the representations subsequently reaching us and make such amendments as might appear to be necessary.
In view of the fact that those Bills were passed without consideration although they involve these fundamental principles, I suggest to the Senate that the appointment of a select committee is warranted on the question of superannuation funds alone.
I will touch on only two other matters in support of my motion for the appointment of a select committee. It will be noted that I have made no reference to the intricate provisions as to companies, or loss companies, but partnerships have been referred to. The Minister has acknowledged that this legislation does not follow the recommendations of the Ligertwood Committee in respect of partnerships. During my second reading speech I pointed out that the Ligertwood Committee would simply redistribute the share of the partner who has not real control of his or her income and assess the partnership income. I speak loosely and not entirely accurately here, but it would assess the partnership income as between the other three partners. There is no complexity at all about this. What bedevilled the previous legislation from 1943 until the publication of the Ligertwood
Committee’s report was that you not only had to find that of a specific income A did not have control of his income, but you also had to find among the other members of the partnership the persons who did have control of that income. My simple proposition is that in a partnership where one person has not real control of income you disregard him for the purposes of income tax. Whether the other three or four partners have the control of that income or not, it is my view that as they have been a party to an agreement with the partner who has no real control of the income, it would be just that the other partners should be deemed to have derived the whole income; the whole income shared among the partners other than the one who has no real control of his or her income would then make its proper contribution to the revenue. That is a simple solution and yet although the section in the old Act occupied a few pages, the present section occupies 260 lines. That is an indication of the degree of complexity that has been introduced into a matter of this dimension.
Mr. Justice Ligertwood never said a word about a tax of 1 0s. in the £ I . I am not here to put forward anything erroneous and if I am wrong I shall be corrected at once but my recollection is that the Ligertwood Committee said not one word in recommendation of a tax of 10s. in the £1. Honorable senators will notice, however, that under the departmental legislation, it will still pay the big partner who is paying 13s. 4d. in the £1 to get in a dummy partner because the dummy partner’s share will be taxed at only 10s. in the £1.
– That is 10s. more than is being paid now.
– That is not the sort of remark that impresses me, I regret to say. I am only examining these anomalies which on the face of them demand inquiry and decision following the acquisition of knowledge as to what they mean so that these tax provisions will not be unjust when they emerge in legislation for which we are responsible.
My last point on the appointment of a select committee is this: When the Government decided to impose a penal rate of tax on trusts, it decided that the penal rate) would apply to trusts whenever they were created and in particular to trusts where the income was not presently payable to any person. This would apply to people under the age of 21 years or other people who were unable to manage their affairs. The beneficiaries under these trusts would not be entitled at law to revoke a trust. That is to say. for the remainder of the life of such trusts they would be sitting shots for a penal rate of tax unless the Commissioner of Taxation thought it reasonable that the penal rales should not apply. Here you get taxation applied immediately to the income yield of a trust whenever it was created. But what about the holders of metropolitan leases? According to the Ligertwood Committee, they would get deductions on capital construction of f i million worth of new buildings deducted over the term of the lease which Mr. Justice Ligertwood referred to as a 98 years lease. Let us suppose it is a 21 years lease. You can imagine the handsome deductions that would be allowed over a period of 15 to 20 years to write ofl” against income tax. There is no provision with regard to those gentry, to the effect that those deductions shall cease to apply after 30th June 1965, nor is there any tax of 10s. in the £1. Moreover, there is no discretion given to the Commissioner to reduce a penal tax and make it reasonable.
I Iia ve said sufficient to give the Senate an understanding of the degree to which this legislation should be subject to scrutiny and earnest consideration by members of Parliament. They would have the courteous and willing aid of officers of the Department of the Treasury to whom I pay tribute foc their integrity and the assistance I have had from them without fail in every consultation with them. 1 hope the Senate will accept the proposition that a select committee is the only body that can satisfy us that the legislation we are producing will not create injustice to the taxpayers.
– Is the motion seconded?
– I second the motion and reserve my right to speak.
– I was prepared to defer to the Minister for Civil Aviation (Senator Henty) but as apparently he prefers to wait, I shall express the view of the
Opposition on this matter. I might anticipate a reminder from some of my colleagues in the Senate if I refer to what happened on the corresponding Bill in 1964 when many of the matters that are now at issue were also at issue then. Speaking on the second reading of the Bill that dealt with the recommendations of the Ligertwood Committee, I said -
This above all Bills would be an appropriate measure for a select committee of this Senate to consider. Such a committee could sit quietly over a period of months and study the Bill and its implications from the legal viewpoint, the human viewpoint and in relation to revenue. All these aspects really need consideration.
That might have been some stimulus to Senator Wright to move at a later stage for the appointment of a select committee.
– lt was some encouragement but 1 had decided before that to submit this motion.
– I do not doubt that; that is why I put my comment in the terms I did. The motion (hat Senator Wright has moved this evening is in almost precisely similar terms. When it came before us in November of last year at the same stage 1 indicated that the Opposition in those circumstances opposed the appointment of a select committee. What I said was -
The Opposition has already made a firm decision that the Bill should come into operation. If there are defects in it they will emerge and we will examine them when they arise. But 1 think it is also fair to the body of taxpayers upon whom this particular measure will impact that it should come into law so that, at least, they may have on the statute book, in the form of this Bill, a guide to their activities.
Whilst there may be matters that are left to the discretion of the Commissioner of Taxation - as indeed there are - I have already expressed the view of the Opposition that we are prepared to trust his fairness. With those thoughts in mind I reject the motion at this time.
This is the important part -
However, if in the new year when Parliament reassembles somebody proposes a scheme to review these aspects, or any other aspects, of income tax law, with ample time to devote the necessary attention to it, then I will certainly recommend to my party that the proposal should be supported.
That was a very firm undertaking. I could be held to it. However, there were two conditions - firstly, that the matter should be approached early in the parliamentary session and, secondly, (hat there be adequate time to deal with it. I do not seek to’ escape by reason of the non-fulfilment of those two conditions. The first condition has not been fulfilled. Nobody, no matter how strongly he felt about this matter - strong feelings were expressed when we debated the legislation in November last - has moved until now. In other words, despite the urgency of the particular provisions that were contended for by Senator Wright a year ago, there has been no action until perchance this measure has come before us now in the dying hours of the session when pressure is upon us to complete the legislative programme.
Secondly, there is not ample time just now to deal with the matter. The session is coming to an end. I cannot imagine that members of the Senate would be disposed to do what Senator Wright indicated that he was prepared to do, namely, to work every day on a select committee throughout the next few months in order to make a comprehensive survey of the Income Tax Assessment Act. Honorable senators have their commitments and they are entitled to have time to attend to their duties in their constituencies. In regard to the question of time, another point arises. I have not any information on this matter, but it may well be thought opportune in the new year to ask the new Governor-General to open a session of the Parliament. It is a courtesy that is generally extended to a new Governor-General. If that is done, the Parliament will be prorogued and everything that is on the notice paper will be wiped off. The proposal now before us is that we defer further consideration of this Bill until perhaps after 31st March next. If the Governor-General does open a new session of the Parliament and this session is closed, the Bill will be discharged in its entirety. I do not know whether the Government will make such a request. It is a courtesy that the Government might well extend to the new Governor-General. That factor needs to be kept in mind.
The third aspect of the matter is that we have discussed this Bill tonight on the basis that we are not objecting to the new provisions. There is to be in the Act a completely new section 23f, to which Senator Wright has referred, and which is designed to vary a provision that was introduced last year. There is to be a revised section 79 dealing with what I might describe as the public superannuation funds. By and large, there is no objection to anything in the Bill that is now before us. In these circumstances, why should it be deferred? Why should there be delay in implementing the provision that military personnel who are serving in Vietnam and Borneo and members of the Defence Forces Emergency Reserve should be exempt from payment of tax? Why should the various purposes of the Bill be delayed, not so much because of anything that is contained in the measure, but because of defects in an Act that was substantially amended a full year ago? My claim on the merits is that there is no justification for postponing consideration of the Bill, even for the important purpose of having a select committee to look at the wide sweep of the Act. The title of the Bill is wide enough to enable us, even at the Committee stage, to open up any matter that arises under the Act. And then, pursuant to the wide authority that we have, we could appoint a select committee if we wished, to do so.
The matter having been allowed to rest for a year, where is the urgency to take the course suggested by Senator Wright, particularly as in almost every case the provisions of the 1964 legislation will only begin to lead to assessments after 30th June 1966? In many cases assessments will not issue until March 1967. It will only be at the close of this financial year when taxation returns are in and assessments are being made that decisions by the Commissioner on all these new provisions relating to trusts, partnerships, leases and the rest will be made.
– The rest is hypothetical.
– -Well, it is long postponed at least. Whatever decisions the Commissioner makes then will be open to objection. They will be open to application to the Taxation Board of Review. Matters showing the implementation of the discretions and authorities conferred upon the Commissioner of Taxation will not come to the surface for quite a long period. Nobody has been hurt yet by a decision of the Commissioner of Taxation under this legislation. In normal circumstances nobody could be hurt until after income tax returns have been submitted on 30th June next.
In these circumstances, there is no great rush for a select committee. In my view, there will not necessarily be any great rush until the whole thing has been teased out and we have a practical example of the working of the Commissioner’s mind. So from every practical viewpoint I put forward the argument that we do not need to approach the appointment, of a select committee in the haste with which we would need to in order to conclude inquiries by 31st March next. I remind the Senate that the proposal is not merely to look at what is provided by this very comprehensive Bill but also to open up the whole Income Tax Assessment Act. That is a worthy purpose; it is a good purpose. In normal circumstances one could not deny such an investigation. When we recall that in relation to some aspects only of income tax law the Ligertwood Committee took 18 months to prepare a report and to make recommendations and the Government took three and a half years to consider them, how can one expect a Senate select committee, the members of which would have many other duties, to go far wider than the Ligertwood Committee had to go - it is proposed that the whole Act be opened up for investigation - to reach conclusions, and to make recommendations within three months, with holidays intervening? I shall not go into the merits or otherwise of the case that Senator Wright has made as to the need for an investigation. I would go along with him and say that it would be useful to have all these things thoroughly teased out and the facts ascertained.
Senator Wright has referred to what has gone on in the last three years and has stated that certain provisions of the Act should have been made retrospective to June 1961, which is when the report of the Ligertwood Committee was made. I would not have expected people to proceed to erect a building costing £1 million on land leased for 98 years with a threat hanging over their heads from the time the Committee’s report was published, and in view of an announcement of the Treasurer (Mr. Harold Holt) that the provisions of the legislation would be made retrospective to 17th August 1961, which decision he did not later honour.
– Many did.
– That is what I am keen to know; that is a fact I would like to have established, because it seems to be against sense that anybody would take the risk, in the light of the Treasurer’s announcement of 27 th August, of hazarding £1 million or more on a proposition that would be completely distorted by what the Government had in mind and the Treasurer had announced.
I turn now from the theory of abstract principles to a consideration of what are the facts. Senator Wright says that there were instances of this risk being taken after the Treasurer’s announcement and before the introduction of the legislation in October 1964. I think I have heard the Minister for Civil Aviation (Senator Henty), who represents the Treasurer in the Senate, deny that there were any such cases.
– I am not aware of any.
– The Minister does not know of any such cases, and certainly I know of none. If Senator Wright knows of such cases over that period, he would surprise me; but it would be a factor of considerable significance.
I pass now to another phase of our reasons for rejecting the proposal at this stage. As I indicated earlier today during discussion of another motion, Senator Wright was good enough to let me have a copy of his observations - a draft preview of his recommendations. As I promised a year ago, I took the matter with a recommendation to the Labour Party’s Federal Parliamentary Executive and to the Party. I honoured the obligation I gave in this place a year ago in submitting to them the proposal for a select committee. After mature consideration, the majority view of the Party was that whilst not denying the Senate its constitutional right to do exactly what it wishes in the appointment of a select committee on this Bill or any other bill that is appropriate, a bill such as this, which is an assessment bill determining upon whom the rates of taxation separately imposed are to fall and, on the other hand, determining the people who shall be exempt from taxation, is one that should have its initiative in the House of Representatives, which is responsible for finance. The Labour Party claims that the proposal should originate there and if anything is to be done with the matter of a parliamentary examination of the Income Tax and Social Service Contribution Assessment Act along the lines that are contemplated, it ought to be done on the. initiative - perhaps of the Treasurer - in another place and with the concurrence of this chamber.
– That is the best sellout of the Senate the honorable senator has made out.
– That is an improper term for the honorable senator to use. I remind him that he puts his arguments with force, but they might be more effective - may I suggest to him - if he put them with a little more tolerance of a viewpoint that does not coincide with his own.
– That is my viewpoint. I am saying that the honorable senator is surrendering the rights of the Senate.
– The honorable senator called it a “ sell-out “, and that is an offensive term.
– It is a complete sellout.
– I do not ask that the term be withdrawn. The honorable senator signed his name to the report produced by the Constitutional Review Committee, in which he dissented from a particular recommendation. His five colleagues joined with six Labour representatives in a recommendation that the Senate should have one month to consider a money bill, a period of three months to consider for the first time any other bill, and one month to consider any other bill for the second time. I did not hear the honorable senator say on that occasion that the recommendation was a sell-out. That matter was argued strenuously and objectively.
– The then Leader of the Government in the Senate was a member of that Committee.
– Yes. Senator Spicer, then the Leader of the Government in the Senate, was the original Chairman of that Committee. He is now Chief Justice of the Commonwealth Industrial Court. He was succeeded by Senator O’sullivan. So that when the honorable senator uses the term “ sell-out “ in relation to any proposal to cut down the priority or the powers of this chamber, he must remember that that term can be applied far more widely than to the Leader of the Opposition or to the Opposition. I rather expected a hostile reaction from Senator Wright on this proposal, having sat with him on the Constitutional Review Committee for three years. I have put the Opposition’s viewpoint quite frankly, lt is our considered view and one that commands a great deal of support and respect from the country, apart from this Parliament.
Mr. Crean led for the Opposition when this legislation was debated in another place quite recently. In the course of his remarks, he proposed that there ought to be some form of committee, statutory, parliamentary or other, to make a continuous review of taxation legislation. He was not prepared to be precise as to the form it should take. He indicated that it was a view of his own that he had not put to the Party. I was interested to gather from the Treasurer’s remarks that the establishment of some such body would be at least discussed. I indicate to the Senate that the Australian Labour Party will quite readily join in any such discussion, and that is the proper way to go about a review of the taxation legislation as a whole. I think the honorable senator has made out a good enough case for that course to be followed, but it is inappropriate to delay this Bill or to establish a select committee on it. In the view of the Opposition there is no great haste, because the legislation does’ not strictly become operative for quite a time yet. There is ample time to deal with this matter in another form. The Opposition rejects the proposal for a select committee on this Bill, delaying and postponing it, and perhaps causing it to bc discharged altogether from the notice paper. For those reasons, we oppose the proposal.
.- The first observation I wish to make is that the Government rejects the proposal to establish a select committee on this Bill. Senator Wright, during the course of his advocacy, asked what were the nine tests referred to. The Ligertwood Committee set out its tests in six paragraphs. The change in form in the Bill sets out those six paragraphs in eight tests. The ninth test is the one requiring an employer to contribute to the fund in the year of income.
Senator Wright also mentioned that the Ligertwood Committee did not recommend imposition of a tax of 10s. in the £1 on superannuation funds. I commented on that aspect during my speech. The Ligertwood Committee’s recommendations could have resulted in the whole of the income of superannuation funds constituted after 1961 being taxed as the income of one taxpayer. The rate of tax applicable could then have been 13s. 4d. in the £1. The Commissioner would have had no power to mitigate that result, which would have been far more drastic than the Government’s proposal. That is why the Government did not accept the recommendation and has proposed an alternative. 1 do not want to cover the ground which Senator McKenna has already traversed. The provisions of this Bill are not limited to those matters which are the subject of the 1964 legislation. There are provisions relating to ex-servicemen, drought affected primary producers, the conversion of machines for the use of decimal currency, the use of redeemable preference shares to avoid tax on dividends and other matters. lt would be an irresponsible act to refer the Bill to a select committee and so delay the legislation on these matters. Despite the terms of the motion, Senator Wright seeks to have only some provisions of this Bill referred to a select committee. These provisions, 1 assume, would be mainly those relating to superannuation funds. However, cogent reasons exist why these provisions should be enacted as early as practicable. I do not want to cover any further matters except to say that the Government cannot accept the proposal to appoint a select committee to consider this Bill.
.- Mr. Deputy President, in supporting Senator Wright’s motion for the appointment of a select committee to consider this legislation relating to taxation, I should like to say that we have heard a most peculiar speech this evening from the Leader of the Opposition (Senator McKenna). First, he mentioned that when the 1964 taxation legislation was before the Senate, and when a move was made for the appointment of a select committee, he gave the assurance that his party would support any investigation relating to taxation. He went on to say that, while this motion was now before the Senate, a year had gone by since the 1964 legislation was passed and nothing had been done-
– He said: “ Early in the new year “. That is what he said.
– The Leader of the Opposition said that nothing was done for 12 months. This, of course, is the sort of thing that happens when action is not taken when the legislation concerned is before the Senate. Time moves on and the matter raised is forgotten. 1 do not know that it is any serious matter now that the opportunity has come forward again and Senator Wright has proposed this motion for the appointment of a select committee.
Senator McKenna then made, as one of his own members quite truthfully pointed out, the hypothetical statement that the Parliament might be prorogued, and that this might happen and that might happen. The Parliament could be prorogued at any time. But 1 have never heard the possibility of the proroguing of Parliament being used before as an argument to stop the Senate considering a matter of this kind or of any other character. Therefore, I say this is a purely hypothetical argument and I do not think the Senate should take that point into consideration at all.
Senator McKenna made a statement which, coming from him as a senator and Leader of the Opposition, rather astounded quite a number of honorable senators. Senator McKenna said that so far as he and his party were concerned this Senate had no right to engage in such a review, or he used words indicating that the review of taxation assessment was a matter for the other place. It has been stated that the Senate is a House of Review. The Senate has to review this legislation which has come before it. The very fact that the Senate has the authority to review and pass this legislation gives it, in my view, the right to consider the legislation more deeply by way of the appointment of a select committee. Tn those circumstances, I cannot see any reason why the Leader of the Opposition should take that view in regard to the Senate. I was surprised to hear a person of the standing and quality of Senator McKenna take that view with regard to the work of this chamber.
As I stated when speaking prior to the suspension of the sitting, this Bill is a complex and difficult piece of legislation. That is what I said about the 1964 taxation legislation. Therefore, any further investigation which could be made by a select committee which would enlighten members of the Senate on this legislation would be of benefit to the Senate and to the country generally. I think that we should have the fullest opportunity to understand the legislation that comes before lis. Senator McKenna and the other learned honorable senators who spoke this afternoon indicated that the legislation was complex and hard to understand. This evening the Minister for Civil Aviation (Senator Henty), who is the Acting Leader of the Government in the Senate and the Minister representing the Treasurer here, made a statement in reply to the second reading debate. Following those remarks, Senator Wright moved his motion for the appointment of a Senate select committee. Senator Wright disagreed with and saw other aspects contrary to the remarks made by Senator Henty and he pointed out that there was a deep gulf and a wide divergence of opinion between them. Senator Henty has his advisers sitting alongside him. Senator Wright is a prominent legal personality in his own State. When people with the learning and experience of the honorable senators I have mentioned hold such widely divergent views on this matter, we have the right to seek the fullest investigation of the legislation.
It has been stated often that committee work would be a very important part in our functions if we were induced or encouraged to undertake it. In my opinion the Senate provides an excellent field for committee work. The Senate would be made a valuable House in this respect because its members would have more time to go into various matters. I think the appointment of a Senate select committee to investigate this taxation legislation is advisable. The legislation is complex and difficult to understand. I feel strongly that the appointment of such a committee would be an advantage to everyone and would be very worth while from the point of view of this chamber. It is with great pleasure that I support the move by Senator Wright for the appointment of a select committee to deal with this legislation.
– in reply - Mr. Deputy President, I could not allow the Senate to vote on my proposal without making one or two brief comments on the points that have been made by previous speakers. The Leader of the Opposition (Senator McKenna) referred to the hypothetical possibility of the prorogation of the Parliament early next year. In doing so, I submit, the honorable senator scraped the drain at the lowest level in order to find reasons for opposing the appointment of a select committee to investigate this legislation.
– The Bill can always be brought before the new Parliament.
– It is the established parliamentary practice on such occasions that such a committee is immediately reconstituted. This is in accordance wilh the practice of any proper parliament. The second point I mention is that Senator McKenna avers that initiative for such a motion as .1 have proposed on such an important matter as this should come from the other place only. This is an occasion when honorable senators should alert themselves to the avalanche of denigration to which the Labour Party is submitting the Senate. If an income tax assessment bill is not a measure in respect of which it is appropriate for this chamber to take the initiative to establish a select committee, then the sooner the Senate disappears from the face of the Parliament the better it will be. If the Senate is to become merely the agent to affix a rubber stamp to the decisions of another place there is no justification for its existence. The statement by the Leader of the Opposition follows a remark made recently by the honorable member for Melbourne Ports (Mr. Crean) who leads for the Opposition on fiscal matters in another place. He said that the view of his party was that any money measure - apparently the interpretation by his party of a money measure includes an income tax assessment measure - once it was passed by another place should become law on the expiration of 30 days. This is an assault on the dignity, role and powers of the Senate which, I submit, we all ought to take the opportunity to repel.
The only other remarks to which I pay notice fell from the lips of Senator McKenna. This is his reference to the move for the appointment of a Senate select committee late last year. Mr. President, I said in the course of proposing this motion that I had not allowed last year’s bill to go to sleep. After several inquiries to prompt the Treasurer (Mr. Harold Holt) to announce the reconsidered measures that he was going to introduce, we were promised them in April. Actually, they were announced to the public on 10th June. The matter was followed up not by way of a parliamentary committee but by studious examination of the matter byme with colleagues and others. The fact that it is now December and no move was made before this time does not afford any reason whatever, I submit, for not referring this Bill to a select committee. As Senator McKenna has said, none of the provisions of this Bill will be operative except in assessments that issue after 30th June 1966. None of the benefits, none of the disadvantages, will be expressed until then. That disposes of the statement that there have been no complaints with regard to the incidence of the legislation and makes completely hollow Senator McKenna’s suggestion that by referring the Bill to a select committee we would be denying benefits to people who, under the Bill, would receive benefits.
– What about the wool growers?
– None of the taxes that will operate under this measure will operate except in respect of the income year 1st July 1965 to 30th June 1966. They will be effective in assessments that will issue after 30th June 1966. The benefits and the burdens will then become evident. We do not expect to have evidence of particular grievances until that time. I suggest that those observations render completely shallow the objections to which I have referred.
Senator McKenna has said that my motion seeks to refer the whole question of income tax to a select committee. That is a complete misreading of the motion. My motion is to the effect that this Bill be referred to a select committee of the Senate.
Question put -
That the motion (Senator Wright’s) be agreed to.
The Senate divided. (The President - Senator Sir Alister
Majority . . . . 39
Question so resolved in the negative.
Clauses 1 to 8 - by leave - taken together, and agreed to.
.- Clause 9 of the Bill is quite lengthy. It begins on page 6 and ends on page 12. To bring the question to a decision by the Committee I have selected paragraph (h) of sub-section (2.) of proposed new section 23f. One of the conditions to which the employee’s superannuation fund should conform is the condition to which I have referred. As the honorable member for Parramatta (Mr. Bowen) has succeeded in eliminating the words that precede those nine conditions, compliance with the nine conditions is not now a matter that rests in the Commissioner’s discretion but is a matter prescribed by law. Paragraph (h) of clause 9 (2.) sets out, as one of the nine conditions, that the benefits available to an employee shall not be excessive. It reads - the benefits that any employee has, or the dependants of any employee have, the right to receive from the fund are not excessive in amount having regard to-
I direct particular attention to sub-paragraph (iv). The Commissioner has put out an information bulletin with specific reference to employee funds under this section of the Act. Let me make it quite clear that this bulletin was put out before amendments were made in another place. But the amendments will not affect, I would think, the application of the Commissioner’s discre tion as to whether or not benefits are excessive. The Commissioner has said that the discretionary powers that he exercised in relation to this matter will take into consideration reasonable benefits. What are reasonable benefits? The Commissioner defines them in this way -
A scale of benefits that will be accepted as reasonable in the absence of special circumstances has however, been prepared. The scale is not relevant to the deductions allowable for contributions made to a fund by an employer or associated person.
I interpolate the remark here that I think the law provides that the employer may obtain a deduction of, I think, £200 or 5 per cent. of the employee’s salary, whichever is the greater. The deduction that the employer can obtain in respect of a director who receives a salary of £10,000 a year would be £500. In the ordinary case the upper limit is £200 or it may be 5 per cent. of the salary, whichever is the greater. I have taken the round sum of £10,000. The employer who wishes to contribute to a scheme of this sort can get a tax deduction of £500 for an employee who receives a salary of £10,000. The Commissioner then goes on to say -
It does, however, refer to the aggregate benfits that may be provided for an employee through his membership of a superannuation fund or funds. The scale is - in the case of lump sum benefits - an amount not exceeding seven times the average remuneration of the last three years of service, with an upper limit of £40,000.
In the case of a pension - an annual amount not in excess of seventy per cent, of the average remuneration for the last three years of service, with an upper limit of £5,000 a year.
In the case of benefits paid partly in a lump sum and partly as a pension - the lump sum test will apply and for this purpose an amount equal to eight times the annual pension actually payable will be regarded as the lump sum equivalent of the pension. For example -
I have read sufficient of the information bulletin to convey to the Senate the scale that the Commissioner has in mind as his guide in the exercise of this discretion.
The person who receives a salary of £1,500 a year can expect at some time to have his. salary increased from £1,500 to £2,500 or even more. All I am indicating is that the quantification of these benefits and the scale appropriate to them is left entirely to the decision of the Commissioner of Taxation. That decision may be varied from year to year. We have the situation where no rule is laid down. The opinion of the present Commissioner of Taxation may be quite different from the opinion of the Commissioner of Taxation five years hence, if there is a change of personnel. There is no stability or security. I think that the question of the amount of these benefits deserves consideration. That is why I brought to the Committee, as an example of the decision that should be registered, the proposal that is set out in the amendment which I have circulated. I move -
Leave out paragraph (h) of sub-section (2.) of proposed section 23f, insert the following paragraph - “ (h) the benefits that any employee has, or the dependants of any employee have, the right to receive from the fund do not exceed -
in the case of lump sum benefits - an amount equal to seven times the average annual remuneration received by the employee during the last three years of service or Forty thousand pounds, whichever is the less; or
in the case of a pension - an annual amount equal to seventy per centum of the average annual remuneration received by the employee during the last three years of service or Five thousand pounds, whichever is the less; and “.
I am not wedded to those figures. I have just adopted them because they are figures that the Commissoner, in his discretion, has indicated as a guide. I think that that scale of benefits requires a great deal of debate.
In my speech in the second reading debate I said that it is not beneath the dignity of this Parliament to quantify the amount that is allowed to each taxpayer for deduction for children - £91 for the first child and £78 for each subsequent child. It is not beneath the dignity of Parliament to quantify the amount that should be allowed as a deduction for payment of superannuation subscription or of life insurance premium.
– Up to a certain amount of money.
– Yes, up to £400 in the case of every person. Every person has equal access to it within the law. Economically, of course, he is restricted. That is whereinlies an objection I often hear from the Opposition, but this is a deduction for superannuation or life insurance calculated to encourage thrift, and the amount was lifted a while ago to £400, which I thought was a very generous upper limit.
– It was extra generous for the insurance companies.
– Yes, it was a benefit to the insurance companies and also a benefit to other people who wished to put savings away up to that limit. But the point is that the law fixed the amount. So far as there are a discretion and capacity, they are within the taxpayer. It is not for the Commissioner to say: “ I allow £250 for the Leader of the Opposition and £600 for the Leader of the Government “. But here it is.
– He has the right of appeal.
– Yes, to a board of review, that is to say, three other officers who exercise an administrative discretion. There is no rule of law. As I say, Smith has been allowed almost double the £40,000 and Brown, a man on the lower scale of opportunity, will be allowed £4,000.
– Are those hypothetical cases?
– No. The claimwas made to me and some of my colleagues - it was not in confidence - that there are cases as to which a. discretion has been exercised for the benefit of some, in a figure almost double £40,000.
– There would be a special reason for that.
– The Minister says that there would be a special reason for that.
– Of course.
– What is it?
– I do not know. Surely the honorable senator is not trying to convince people in this chamber that in two identical cases there is a discrepancy anywhere nearly as large as he has suggested?
– Who is to judge as to the identity of cases, when there is no rule oflaw to guide anyone?
– Oh, rule of law.
– Senator Kennelly may interrupt in that fashion, which only betrays his lack of experience in these matters and his lack of appreciation of principles that underlie the very basis of justice in this country. If Senator McKenna’s idea is that administrative tribunals or officials should have those powers of discrimination, he is welcome to his political opinion. I am stating mine as resolutely against it, and I just wish to be heard in putting before the Committee an explanation of how this particular paragraph has been interpreted. I venture to suggest that few would anticipate that effects of this order would be within the discretion of any particular official or even a board of review. I do not agree with the scale, but if the Committee does it will accept the proposal that I put forward, unless it prefers the whole matter to remain in the discretionary judgment of the Commissioner as it remains now, rather than be prescribed as a rule of law, as proposed by my amendment. As I say, the fact that I put the amendment forward does not mean that I approve of the whole of it. I submit it simply for the approval of the Committee.
– The Government is unable to accept this amendment which, in its view, has some serious defects. Taken at its face value, the amendment would seem to introduce an unnecessary and undesirable rigidity into the law. A closer look will show that it will permit any number of funds to be established for a favoured employee. For example, a shareholder or director of a private company could have several funds created for his benefit. Membership of multiple funds and the tax avoidance that goes with it would once again become rampant and the very things that the Ligertwood Committee and the Government laboured to achieve would be destroyed.
If the amendment were adopted, a company executive could get into, say, five funds and amass a benefit of £200,000 almost tax free. By contrast, the limits suggested by the amendment would apply rigidly to an employee who was a member of only one fund. The amendment would open the way for other anomalies. For example, a controlling shareholder of a private company could inflate his remuneration in the last year of service so as to ensure that the benefits he could take out tax free would amount to £40,000. As the Bill stands, this rigidity will not be forced upon the Commissioner in his administration of the law or upon the Taxation Board of Review when cases are referred to it. The Government regards the amendment as ill advised and cannot accept it.
– I agree with what Senator Henty has said in relation to the particular proposal. If we look at the provision that Senator Wright seeks to delete, we find that one of the conditions that will attract exemption from taxation reads - the benefits that any employee has, or the dependants of the employee have, the right to receive from the fund are not excessive in amount having regard to -
Senator Wright has sought the deletion of all of those considerations that the Commissioner must have. He proposes to substitute merely the upper limits to which the Commissioner may go. The amendment overlooks one thing. Whereas it provides for lump sum benefits and for pensions, it does not deal with the case where there is a part pension and a part lump sum. I understand that that is a case of rather common occurrence. In the table submitted by the Commissioner of Taxation in his “ Public Information Bulletin “ one will find that particuar type of case dealt with, and it does need to be brought into consideration.
But there are two serious objections raised by the Minister. Accepting this and disregarding altogether the provision of proposed section 23f (3.), having regard to the benefits that a man gets from any other fund, there may be, particularly in a private company, a whole succession of funds to which a man might subscribe and from which he might receive benefits - each to the tune of a £40,000 pension or each to the tune of a £5,000 pension. Again, I shall elaborate somewhat the point made by the Minister, that there could be a grand stepping up of salary in the last year before retirement.
– I think I used the word “ year “. I should have said “ years “.
– The last period of three years’ service.
– Yes. There is very little to the point I am making. The stepping up could apply to the whole period of three years. It could be done very easily in the case of a private company. The salary could be stepped up most appreciably and even most outrageously over the last three years for the purpose of attracting the maximum benefit.
In the provision that it is proposed to delete regard is had to the remuneration paid, the period of service and the question of whether the person concerned benefits from other funds. These all are factors which, I suggest, must be taken into account. There is the additional point that three years service alone could, under the amendment as proposed, qualify a director to benefit. Senator Wright’s amendment proposes to delete the requirement that the Commissioner is to have regard to the period of service. Of course, one of the most essential things is that superannuation shall be paid at particular retiring ages from 60 years onwards, or at 65 years. It is a reward for a long period of service. On the amendment as proposed to us there could be very high salary for a three year period and a tremendous retirement pension or a lump sum payment on retirement. Those are aspects that should not be overlooked.
What I have said may sound fantastic, but it is not fantastic when we consider the circumstances. Let us assume that an individual develops and patents an article that has a world-wide appeal. There is a demand for it all over the world, and in three years he could make a fortune. This has happened. He forms himself into a private company. He provides for his superannua tion. He contributes largely from the company and steps up his salary to the limit so that he can attract superannuation benefits. Despite his age - I think I am correct in saying this - he can retire at the end of three years. Surely this and similar instances are proper to be taken into account by the Commissioner. It seems to me that here we have the very essence of the protection that the community needs. The Commissioner should be able to. look at the way in which that person’s remuneration has been running, at how long he has been serving, and whether a number of funds is involved. He should take all those factors into account.
I should feel very unhappy about clause 9 re-writing section 23f if I thought that the Commissioner was not free to look at those matters, to look also at the person’s salary in the last three years and to be concerned with whether the amount provided reached the limit of £40,000 as a lump sum or £5,000 of income.
– Does the honorable senator think that that should be the limit of the Commissioner’s discretion?
– It is the limit he himself has imposed, in his published opinion.
– The honorable senator is missing completely the point Senator Wright is making in this respect.
– I say to the Committee that I was shocked when I first saw the size of the limits allowed, they being £40,000 as a lump sum or £5,000 in pension. They seemed to me to be extraordinarily high. Then I realised that there would be quite a large number of people in the community who would be earning £6,000 a year. Seven times that amount would yield £42,000. The lump sum to cover the average salary for the last years would not be extraordinary in the case of a person legitimately earning £6,000 a year. There would be people in business who, by reason of special skills or special experience, would attract very much more than that. I can conceive of cases in which £80,000 would not be an undue figure.
– That is acceptable to your side, is it?
– I have never put that in detail to my party, but in conscience, it you found a proper case of an individual with enormous skills who has attracted a salary that can be justified and is retiring at the normal retiring age with all the normal incidence of superannuation, that amount could be justified. I think there will be found rare cases in which the amount could be justified. Those who are fearful of the Commissioner’s discretion might be consoled if he were to have regard to these extraordinary cases.
Senator Wright’s amendment would throw out altogether the extraordinary case in which £80,000 as a lump sum or £10,000 a year could be justified. 1 think that the Commissioner is quite right in saying: “ .1 will look at every case on its merits.” Why should he not look at cases on their merits? That is one of the virtues of his having a discretion. Not only does it enable him to give relief from hardship but it also enables him to look at a thoroughly proper case. 1 can imagine cases in which the Commissioner might be convinced to go to the limit, and I think that is quite wise. To deprive him of the obligation to have regard to those other factors would be to strike right at the very basis of superannuation as 1 understand it.
.- I regret that both Senator McKenna and the Minister have taken as the basis of their argument the fact that my amendment does not include provision requiring the Commissioner to take into account other funds. My amendment is put forward on the basis nhat this is the sole superannuation benefit to which a person is entitled. It was never dreamt that with benefits of the dimensions referred to, he would get income tax benefits from other funds. I have not put forward this amendment as a complete series to remedy the defects in the Act. If I had felt capable of putting forward by way of draftsmanship or conception all the appropriate benefits I would not have moved for the appointment of a select committee. Those are matters to be hammered out in detail, after very close and earnest consideration. It completely distorts the point of view implicit in my amendment to suggest that it would allow a man to derive benefits from four or five other funds and so aggregate the total benefits to £200,000. I do not think that it adds to the force of argument to take advantage of such omissions of draftsmanship when the matter is considered in true perspective, lt should be considered as implicit in the amendment that these benefits are large enough to be the only superannuation benefits which, tax free, a person can accumulate.
The other advantage in putting forward this amendment is that it has attracted the expression of opinion that has fallen from the Leader of the Opposition (Senator McKenna). J must say that when I first saw the figures I was disquieted and shocked in the extreme. I am the kind of person who is very much impressed by debate on a subject if it is purposeful and informed debate and not merely pre-conceived and predeter.mined. With Sir Edmund Burke, 1 have no respect at all for the kind of decision that precedes discussions. But out of this discussion we have got the view of the Leader of the Opposition in this chamber that there would be cases where a pension of £5,000 a year or £40,000 as a lump sum should be accumulated with the benefit of complete exemption from taxation. That is a view that 1 would have liked more honorable senators to discuss, because my mind would be greatly helped if I thought that this was. the considered view of the Parliament. All I am anxious to do is to get an equitable system of income tax. On reflection, I would have thought that if, with a graduated system of income tax, we enabled too much to be taken out in the overflow, we would defeat the purpose which lies at the very basis of a graduated system of income tax. The other day we were discussing salaries of up to £ 1 2,000 per annum. I inquired what the tax was on an income of £12,000 and found that it was £6,037. It is not to be supposed that the recipient of a salary of £12,000 submits the whole of his income to tax. There are concessional deductions for life assurance premiums, for developmental expenses in primary production and for provision for superannuation which enable the taxable income to be less than the salary received.
– Superannuation is treated in the same way as life assurance?
– Yes. All I am saying is that if too much taxation is forgiven in this superannuation outlet, you can destroy or distort the graduated scale. There has been expressed from the other side of the chamber the view that the insertion of these concessional deductions in the law is creating an inequity in the graduated scale, lt is very valuable for mc to consider the point of view of the leader of the Labour Party in the Senate. He said that there are cases where people on ?6,000 a year deservedly, after a lifetime of service with a company or some other employer, receive a lump sum payment of ?40,000 or a pension of ?5,000 a year. He then went further and said, as 1 understood him, that there are special cases which make him more disposed to leave this matter to the determination of the Commissioner of Taxation than to attempt to write a scale into the law. I would have thought there were objections to that way of doing it. I am not convinced yet that there is equity in these amounts, as amounts. I have risen simply to say that it is quite wrong of anybody to attribute to the author of this amendment the idea that other funds would be established in the same way. It is implicit in this amendment that this is the only superannuation benefit to which this taxpayer is entitled. As I- find the sense of the Committee to be wholly against my amendment, I content myself with having explained it to that degree.
.- I rise to support the opposition to Senator Wright’s amendment. I feel that throughout the second reading and committee stages he has been ostensibly pushing a barrow for the small man and leaving a wide open space for the man who wants to evade the legislation. I have an abiding faith in the discretionary power of the Commissioner of Taxation. I think that some of the keystones of the whole edifice of the tax evasion system are the arguments that are put up ostensibly on behalf of the little man but which in fact protect the big man. In a subtle way, this gives some sections of the community advantages that should rightly be available to the small men. That seems to be the concept of Senator Wright’s argument. He is arguing with two voices. He is putting up a case for the small man but is keeping open all the loopholes which, as Mr. Justice Ligertwood showed, should be closed.
To my mind, superannuation is one of the important matters in respect of which the Commissioner of Taxation should have discretionary power. Where there have been genuine savings by genuine people, I know of no better arbitrator to go to. Whenever I have a case brought to me I go to the Deputy Commissioner of Taxation in my State and say: “ This is the case. What do you think of it? “ He uses his discretion, and I have never known him to fail to give the advantage to the genuine man. Senator Wright, however, wants what the Commissioner has to do to be written into the legislation. I feel that in pushing his barrow he has been opposing the Ligertwood report, which was the best thing that ever happened in regard to this aspect of our economic system. It brought out into the open the fact-
– I rise to a point of order. I think the honorable senator should confine his remarks to the clause under discussion. That would have the advantage of revealing whether he knows what the clause is and what its provisions are.
– I am applying myself specifically to the question of superannuation, but I am generalising on the whole of the honorable senator’s contribution to the debate.
– The honorable senator is being very unfair in some of the things he says, for all that.
– I stand by what I have said. I feel that I am entitled to express my views. I have risen on two or three occasions but have deferred to a superior advocate, a clear-thinking, honest man who has been putting up a case for the community in general and who has been trying to prevent the loss of millions of pounds of tax revenue. This is a loss that the working man has to make up out of his wages week by week. He has no dodges, lurks or rackets. Every week he has to pay his taxes in cash out of his wages. This is not the case with other people, who take advantage of loopholes in the law, of holes in the net and of legal nuances depending on the interpretation of a word.
– I rise to a point of order. I ask the Chair to maintain relevance to the clause before the Committee.
-(Senator DrakeBrockman). - If Senator O’Byrne confines himself to the clause he will be in order.
– If I depart from the subject matter under discussion I will expect you to draw my attention to that, Mr. Chairman. I want to express myself on this matter. I believe this is one of the most important pieces of legislation ever to come before this Parliament. In this Committee debate we are discussing the details of how these things are worked. I do not think the Government really liked having to introduce this legislation but, despite that, it has been introduced. We now find people speaking with great eloquence in an attempt to keep the loopholes open. I draw the attention of the Committee to the fact that the Government is doing a good job in closing many loopholes. Any genuine cases of hardship can be left to the discretion of the Commissioner.
.- It was not my intention to speak on this matter, but I wish to make clear to the people I represent exactly what is the matter we are now dealing with. I do not agree with the proposition that Senator Wright put forward by way of amendment. I agree with the contention of the Minister and support him. I was interested to hear Senator Wright draw from the Opposition an admission that this is all right with them. I will remember that.
– At the discretion of the Commissioner of Taxation.
– At the Commissioner’s discretion. We agree that when it comes to evening up the tax burden, an individual gets a deduction of £143 for a wife and a deduction of £91 for the first child. Those concessional deductions are fixed. But the amendment under discussion relates to superannuation funds, and tax deductions on these funds operate in the reverse way. If a person has an interest in a company that will pay in a specific amount for him, at the end of his working life he receives a lump sum as a capital gain; it will be tax free or taxation will be paid on 5 per cent, of it. As I understand it, that is the proposition in relation to superannuation funds. The amount is received as a lump sum.
– Up to £40,000.
– It would be very good if Senator McManus were correct. His interjection indicates that he does not understand the point although he will vote with Senator Wright. I would hope that this would be clear to every honorable senator. I have here a copy of the “Public Information Bulletin No. 6 “ and I congratulate the Commissioner of Taxation on the publication of these bulletins. “ Public Information Bulletin No. 6 “ contains an explanation of the way in which the discretion given to the Commissioner of Taxation will be used. The Leader of the Opposition (Senator McKenna) said that the discretion will be applied to what are construed as reasonable benefits. The term “ reasonable benefits “ will be applied to the amount a company can pay in. The company will be able to claim all of this as a tax deduction. There will be no taxation benefit for the person to who the company’s contribution is being credited. At the end of a period of years, the beneficiary will receive a lump sum. A person on a small salary might receive £5,000. Another on a high salary might receive £10,000, and 5 per cent, of that will be taxed. Another person might receive £20,000. This is what the members of the Australian Labour Party are supporting. The “ Public Information Bulletin “ states with reference to the aggregate benefits that may be provided for an employee through his membership of a superannuation fund or funds -
The scale is -
In the case of lump sum benefits - an amount not exceeding seven times the average remuneration of the last three years of service, with an upper limit of £40,000.
– That is what I said and the honorable senator said I was wrong.
– I thank Senator McManus for repeating that statement. I shall ask the Minister for Civil Aviation to explain to Senator McManus what is actually meant by this provision. Actually, approval has been given for an amount nearly twice that figure and Senator Wright has mentioned this on three occasions. There is not an upper limit of £40,000.
I have risen to defend Senator Wright and to support his case. If the Opposition believes that Senator Wright is endeavouring to make a loophole so that the wealthy man can get wealthier, it is on the wrong track. Senator Wright set out to show that a provision as explained in the “ Public Information Bulletin “ is not in line with practice. The Commissioner’s discretion is being used much more widely than that.
Perhaps if a person is on an income of £12.000 a year - and such incomes were discussed in another debate recently - and if he could encourage his company to contribute an appropriate amount, he might receive seven times his average salary of the last three years of service as a retiring allowance. I am pleased to see that the Australian Labour Party will agree to an individual receiving a lump sum on retirement of £80,000 while another individual is tied down to £40,000.
.- I move -
Leave out sub-section (7.) of proposed section 23f, insert the following sub-section: - “ ‘ (7.) Where, in relation to a superannuation fund, there has been substantial compliance with the provisions of sub-section (2.) of this section during a year of income, this section has effect as if those provisions had been complied with during that year of income.’ “.
I have no doubt that Senator O’Byrne will pretend to know what are the requirements referred to in the proposed new sub-section (7.) in the Bill which states -
Where a requirement specified in sub-section (2.) of this section has not been complied with in relation to a superannuation fund in relation to a year of income but the trustee of the fund satisfies the Commissioner that, by reason of special circumstances that existed in relation to the fund during that year of income, it would be reasonable for this section to have effect as if that requirement hud been complied with, this section has effect as if that requirement had been complied with.
I have no doubt that the draftsman who penned that proposed sub-section will receive the inane plaudits of Senator O’Byrne but I have read it for the second time today. . . .
– I am just as bewildered as to its meaning as I was when the honorable senator read it the first time.
– I have read it again to illustrate that point.
This is what the draftsman is trying to say through this proposed sub-section as presented in the Bill: Nine conditions with which superannuation funds are required to comply have been enumerated in the Bill. If the Commissioner of Taxation is satisfied by the trustee of the fund that there are special circumstances why these nine conditions were not complied with, the Commissioner can ignore the non-compliance and still grant the fund exemption. I have partly adverted to my objection to that method of dealing with the superannuation funds. This discretion must be read in the light of the fact that it is proposed in the rates bill to apply a rate of 10s. in the £1 to the income of a fund that does not comply with any one of these nine conditions. We still have to hear the attitude of the Australian Labour Party in the Senate to this proposal that half the income of the fund will be confiscated; I call a rate of 10s. in the £1 a confiscatory or penal tax.
Let us take a case where an employer has not contributed anything this year to the fund. Under the law, not the employer but the employees’ fund becomes taxable to the extent of 10s. in the £1 in relation to the whole income of the fund. The proposed sub-section I have read for the second time gives the Commissioner the right to ignore that non-compliance if there are special circumstances.
– Order! In conformity with the sessional order relating to the adjournment of the Senate, I formally put the question-
That the Chairman do now leave the chair and report to the Senate.
Question resolved in the negative.
.- How can you define what the Commissioner would conceive to be special circumstances in such a case? The Commissioner has indicated in the “ Public Information Bulletin “ to which I have referred some of the things that he will take into account where a contribution is not made by an employer in a particular year. He has stated -
Where there are no other circumstances in the way of applying section 23f, the discretionary power will be exercised in relation to paragraph (b) where a contribution is not made by an employer in a year because - the contribution is made by an associated enterprise and not by the employer; a member for whom a contribution was made in earlier years has changed his employment and contributions for his benefit by his former employer have ceased; moneys provided by the trustees out of accumulations in earlier years or lost or forfeited benefits make it unnecessary for the employer to contribute; an employee is absent from duty; an employee remains in employment beyond the normal retirement date but contributions by the employer cease; past contributions by the employer and (in most cases) the employee, together with income and capital gains of the fund, are sufficient to provide the proposed benefits; further contributions would result in the fund losing tax exemption through the application of paragraph (h) or (i); an employee is serving a reasonable qualifying period before the employer is required to contribute; contributions by way of life assurance premiums are unnecessary while an employee is disabled; a fund is conducted on an actuarial basis and contributions are made only when actuarily necessary; the financial position of an employer makes it inappropriate for him to contribute.
It was in relation to all these matters that an argument was strongly advanced in another place - I think it was soundly established - that here was a discretion that made the Commissioner of Taxation, in effect, the director, supervisor or the commissioner of all superannuation funds. It would horrify me as a Liberal to hear a proposal advanced for the setting up of an official who should operate as a supervisor or registrar of superannuation funds and who should have powers of revision and discretion as to the management or validity of such funds.
I believe that the only sound basis upon which a guide could be established in this regard - I think my colleague Senator Webster was the first I had heard put forward this suggestion - would be if a model deed were put forward as an appendix to the Act or in some regulations. Then everybody would know that, if they conformed with that deed, they would be completely within the law. Some people would wish to make departures from that deed. They should be entitled to do so as long as the departures did not infringe these 11 conditions that the Commissioner has laid down and which are incorporated in the statute as conditions that should be complied with.
– Would you not need an interpretation of the deed then?
– Of course you would. You would need an interpretation of every document or transaction. What I am seeking to argue - I should have thought that all Liberals would have understood the principle by now - is that individual rights such as superannuation rights can be protected only if the individual has the right to invoke a decision of an impartial court. Individual rights are subject to great threats and dangers if they exist only at the discretion of an administrative official, especially with such a wide discretion as this. The Commissioner can absolve a superannuation fund from a technical non-compliance of one of those 1 1 conditions, but is given power to do so only in special circumstances. He is not required to absolve the fund if certain things exist. It rests entirely in his discretion as to whether he will absolve the fund from this penal tax that the law has imposed.
I have read from the “ Public Information Bulletin “ a list of 1 1 instances in which the Commissioner has said he can be expected to exercise a discretion. That shows the power that is given to this official. That is the sort of thing which I think endangers the rights of beneficiaries in a superannuation fund and why I seek to have inserted the following subsection - (7.) Where, in relation to a superannuation fund, there has been substantial compliance with the provisions of sub-section (2.) of this section during a year of income, this section has effect as if those provisions had been complied with during that year of income.
If there was a dispute between the trustees of my fund about whether I was entitled to be absolved from the payment of a tax of 10s. in the £1, I would be entitled not merely to have a discretionary review by an administrative tribunal - that is, a Taxation Board of Review - but I could, go to a court of law established for this very purpose. Then a judge would say whether or not there had been substantial compliance with these conditions. Such a situation would be much more attractive to members of this community than their being dependent upon the discretion of the Commissioner. When you are dependent upon the discretion of a commissioner, he can discriminate. Nothing breeds resentment in the minds of taxpayers so much as does the idea that there may have been, or is, discrimination as between one fund and another.
– Not everybody can go to the court.
– Well, every fund of this nature could go to the court. It would be supported by the company that established the fund. There would be assets in the fund which, as provided by most superannuation deeds, could be applied for payment of court expenses incurred in protection of the fund. It seems to me that, when you have an issue as to whether or not the income of the fund should be halved, onehalf to go to the fund to be preserved for the beneficiaries and one-half to go to revenue, this is where you could afford the fund the protection of the court.
.- The amendment is not acceptable to the Government. The provision in the Bill authorises the Commissioner to ensure that genuine funds do nol lose their exemption through inadvertent or unavoidable failure to comply with one or more of the tests set out in section 2?iF. This policy is in line with the Ligertwood Committee’s recommendations.
In the amendment proposed by Senator Wright, the key words are “ substantial compliance “. They are vague in their meaning and would leave much room for debate, and probably for litigation. Senator Wright is probably aware that it has been said in the courts that the word “ substantial “ has no fixed meaning and is an unsatisfactory medium for carrying the idea of some ascertainable portion of the whole. 1 have heard it said that “ substantial “ is really a lawyer’s dream. It is not in the dictionary.
– I beg the Minister’s pardon?
– It is not in the dictionary in that way. If the amendment were accepted, a fund might satisfy eight of the nine tests but be amassing exorbitant tax free profits for just a favoured few employees. It would, I suppose, be achieving substantial compliance when it met eight tests and failed only the test regarding excessive benefits.
Another weakness is that the fund might meet most of the tests but not provide employees with fully secured rights to benefits. Employees would not thank the Parliament for a provision which, even to a minor degree, tended to reduce the fullness of security so desirable for them. Moreover, the degree of compliance with the tests, and hence the liability to tax, would noi be known until after the end of the income year. Since the Commissioner would have no discretion in the matter, the provision could operate more rigidly in some cases than the terms of the law as proposed in the Bill. However, the main reasons why the .Government must reject the amendment are the vagueness of its concepts and the avenues for tax avoidance which would certainly be opened up.
.- I again enter the debate to try to answer a question asked by Senator Wright. Senator Wright asked: “ How can the Commissioner divine the circumstances of each case? “ I would like to point out that the infinity of human behaviour is equalled only by the infinity of methods of avoiding tax. The Commissioner of Taxation usually has had almost a lifetime of experience of taxation matters and has been exposed to all the varieties of tax evasion, and all the types of people who pay their tax willingly and honorably. It is foolish to challenge the capacity of the Commissioner in these matters. He has great experience and is one of the small group of men in the community fully equipped to be able to judge individual cases.
The Senate is to be asked by Senator Wright to act as a forum for the next two or three hours while he puts up cases which cast aspersions and sow seeds of suspicion on the capacity and ability of the Commissioner. In my opinion the Commissioner, and his deputies in the States, are the only men properly trained to discriminate and, as Senator Wright described it, divine the circumstances of each case. Senator Wright also attempted to draw a picture of the mass of taxpayers. The mass of taxpayers is composed of men who know that they must pay their way. They know that they must pay the grocer, the bus driver, the butcher or the Commissioner of Taxation. They pay up and shut up. A man who is trying to avoid payment has to have excuses. The individual person is not the mass of taxpayers; he is the exception. I feel that the case that Senator Wright is putting up is of a rare individual. As an individual, he has certain rights but he has to be able to prove his case before someone - to prove that he is the exception that tests the rule, not proves the rule. There is a lot of difference between proving and testing a rule. The obvious man in the community to test the rule, to adjudicate and arbitrate, is the Commissioner of Taxation.
The only further contribution I wish to make to this debate is to state that I am loath to sit here for the next two or three hours while the same argument is put up on every case; while the exception is put up to test the rule, rather than a genuine case. It cannot be disproved that the Commissioner and his deputies have the required knowledge of human behaviour that drives men to acquire money and, having acquired it, to keep it. Money is hard to come by, and men do not want to let it go. In his second reading speech the Minister several times used the word “ device “. I believe that Senator Wright is propagating devices whereby men can escape their responsibilities to the community.
.- Is it not a pitiable spectacle when the once great Australian Labour Party has to lead in a debate with inanities such as we have just heard from Senator O’Byrne? He does not know the vaguest thing about the legislation. He does not know what it is to do, much less which clause of the Bill we are discussing. If any honorable senator were to state a proposition relevant to the Bill, Senator O’Byrne would not know how to put one argument in relation to it. The only contributions he can make are the inanities to which we have just listened. He said that the Government is doing a good job. Senator McKenna made the statement that he approved £40,000 as the lump sum benefit for superannuation. He also said that he could quite understand cases where double that amount would be justified. Those are the contributions of the Labour Party. When the Opposition gets to that degree it is time that honorable senators on this side of the chamber were jolted into a little consideration of these matters so that the Commissioner of Taxation will know who are his real friends. It would be unfortunate if Parliament were to operate on the same vein of imprecision as does Senator O’Byrne.
I turn now to the observations that properly fell from the Minister. I say “properly”, because they were on matters of objective debate. The first proposition put forward by the Minister was that the words “ substantial compliance “ are of most indefinite connotation. He said that probably I knew that. I am not aware of: any decisions given by the courts to that effect.
– What does “ indefinite connotation” mean?
– That interjection illustrates the vacuity of the mind we have just had emptied upon us. I pause for a moment so that Senator O’Byrne by taking thought might add one inch to his stature. ( was saying that the expression “ substantial compliance “ is alleged to be a term of indefinite connotation. It has been said to be known as a lawyer’s dream. If 1 have stumbled into a marsh of that description, I have done so with only an indefinite recollection of what I thought was case law in the company field. I did not take the trouble to re-read anything that was lurking in the background of my mind. If the expression is too indefinite for a court to give precise application, I will accept any other term that will give to a court a reasonably objective phrase upon which to base an interpretation.
I invite the Minister to tell me - with his advisers near at hand - on what court decision does he put forward the words “ special circumstances “ in this context to indicate anything of less definite connotation. I suggest that if a court has to decide “ substantial compliance “, it will decide it on a basis of robust objective fact in the open, after debate from both sides. But if the Commissioner who is commanded to secrecy and not compelled by law to hear argument decides there are special circumstances, I ask the Minister to tell me how an advantage is obtained out of that.
– I cannot give Senator Wright a decision of the court on “ special circumstances “. But I can give him one of “ substantial “ -
This definition was used in the case of Terry’s Motors against Rinder which is reported in 1948 South Australian State Reports at page 167.
– I intervene briefly to indicate that the Opposition does nol support the amendment, which proposes to delete sub-section (7.). This is a refined variation of a complicated provision that was in the Bill as first introduced. It does confer a beneficial power upon the Commissioner of Taxation not to tax anybody but to release somebody from liability or obligation to comply with conditions. Therefore, it is a benefit. When we are prepared, as we are now, to concede so many discretions to the Commissioner - 1 am not in the least bit disposed not to grant him one discretion that would enable him favorably to consider the position of a fund that through inadvertence or bad luck failed to comply in a particular area with one of the many conditions.
– But the Commissioner has to find special circumstances before he absolves.
– Yes. He must of necessity address his mind to the provision “ by reason of special circumstances “. It is a beneficial provision. I agree with what the Minister for Civil Aviation has said about the term “ substantial compliance “. It is quite vague. I should think that Senator Wright’s amendment, in order really to meet the point raised by the Minister, ought to go a bit further than it does. The Minister raised the point that in Senator Wright’s amendment only some of the particular provisions of sub-section (2.) should be complied with substantially. That point could be met undoubtedly if Senator Wright altered his amendment to say that there has been substantial compliance with each of the provisions. I have no doubt that is what the honorable senator intends. The argument has been addressed that compliance with three-quarters of the provisions or something of the kind might be substantial compliance. Certain of them could be ignored. His amendment would be improved if it were more specific on this point by the addition of “ with each of the provisions”. I still feel it is far better to leave the matter to the fairness and experience of the Commissioner of Taxation rather than to introduce words that leave the Commissioner out of the picture and, in the event of dispute, oblige a person unhappy about a decision to go to court. There is virtue in access to courts. We are leaving so many discretions in the hands of the
Commissioner of Taxation. This is a beneficial discretion. In the view of the Opposition it should be left in the Commissioner’s hands, too.
.- I refer to sub-section (15.) of proposed section 23f. This is the dominant subsection and provides -
Subject to the next three succeeding subsections, the income derived during the year of income by a superannuation fund to which this section applies in relation to the year of income is exempt from income tax.
I move -
That the following words be added - “ except to the extent to which the income has not been applied by the trustee of the fund in accordance with the provisions of sub-section (2.) of this section “.
Again, I have not provided all the corollary provisions that should go with this proposal if it were adopted. I put these words forward as a means of raising an argument, which is this: Instead of the sub-section which provides that if there has not been compliance with any one of the nine conditions subjecting a fund to a tax of 10s. in the £1 to be dispensed with in the discretion of the Commissioner of Taxation under the provision we have just discussed, I present the viewpoint to the Committee that it would be better to give exemption from tax except to the extent to which the income of the fund has been applied contrary to the conditions which the Commissioner thinks are proper. I illustrate the argument by reference to the condition whereby it is said that forfeited benefits have been a great source of abuse under the superannuation funds. Accepting that as I do from the report of the Commonwealth Committee on Taxation under the chairmanship of Mr. Justice Ligertwood, it seems to me that where trustees forfeit beneficiaries accounts and then by devious means - a trustee deed or articles of association or some method - they get the benefit of the forfeited funds to the accrual pf directors’ accounts or something like that, it is these misapplied funds which should fortify the exemption of tax. These misapplied funds should be subjected to taxation possibly not at the ordinary rate but at a double rate or something of that sort as a deterrent.
What I am objecting to is that simply because of some peccadillo by the management of the fund causing non-compliance with the conditions set out in subsection (2.), it brings a penal tax. Half the income of the fund is payable to the Treasury and is taken from the beneficiaries who, on the basis on which I am addressing the Committee, have had no part whatever in bringing about non-compliance of the conditions of the fund. I am simply presenting the view that the principle should not be a penal tax on the income of the fund to the extent of 50 per cent. of the income of that fund. Mr. Justice Ligertwood’s Committee never recommended that. I am putting it to the Committee that we should consider an alternative idea. The idea that occurs to me is that insofar as the income has not been applied properly for the true purposes of the Act and the deed, it should be subject to taxation insofar as it is misapplied. Now, that may be an imperfect idea. I am prepared to submit to criticism with regard to it. If I had felt completely satisfied with these amendments, I would not have moved for the appointment of a select committee. But 1 think that to everybody other than Senator O’Byrne I should be regarded as endeavouring to get consideration whereby the extent of the penalty on these superannuation funds is not disproportionate to the non-compliance.
Sitting suspended front 11 to 11.40 p.m.
– The Government cannot see its way clear to accept this third proposed amendment to clause 9. Subsection (15.) of proposed section 23f authorises an exemption of the income of a fund which meets the tests of sub-section (2.) of the section or in respect of which the Commissioner has exercised his discretion. The amendment proposed by the honorable senator would authorise exemption of the income of a fund except to the extent that it is applied otherwise than in accordance with sub-section (2.) of proposed section 23 f. There are a number of difficulties associated with this amendment. Not the least of these is the fact that sub-section (2.) does not specifically require that the income of a fund shall be applied in any particular manner. The amendment, therefore, would not be capable of practical ad ministration in the context of the provisions of the proposed section 23 f.
Clause agreed to.
Clauses 10 to 17 - by leave - taken together, and agreed to.
Section 79 of the Principal Act is repealed and the following section inserted in its stead: -
– (1.) In this section - “ (2.) Subject to the succeeding provisions of this section, this section applies, in relation to a year of income, to a superannuation fund if -
required that any pensions or annuities that dependants of a member had a right to receive from the fund were to commence to be paid, and any other benefits that dependants of a member had a right to receive from the fund were to be paid, not later than the seventieth anniversary of the birth of the member or were to commence to be paid or were to be paid, as the case may be, in the event of the death of the member before that anniversary, and the terms and conditions applicable to the fund during the year of income have been approved by the Commissioner having regard to -
a fund to which this section or section twenty-threeF. of this Act applies in relation to the year of income or has applied in relation to a previous year of income;
. -I move -
In paragraphs (f) and (g) of proposed section 79 (2.) leave out all the words from and including “ have been approved “ to and including “ thinks fit,”, insert “ provided for contributions and benefits for each member that do not exceed -
in the case of contributions -
where the member has not attained the age of forty years at the end of the year of income of the fund when the contribution was made - Four hundred pounds per annum;
where the member has attained the age of forty years, but has not attained the age of fiftyeight years, at the end of the year of income of the fund - Eight hundred pounds per annum; and
in any other case - Twelve hundred pounds per annum; and
in the case of benefits -
where the benefits are lump sum benefits - Forty thousand pounds; and
where the benefits consist of a pension - Five thousand pounds per annum,”.
This clause re-enacts section 79 of the Principal Act, which introduces an entirely new superannuation fund in which any member of the public can provide for his retirement between the ages of 60 and 70 years from any profession, occupation or employment. This section gives rise to an entirely new conception in income tax law, so far as I know, whereby the income of a fund is entitled to enjoy a deduction from taxable income equal to 5 per cent. of the cost of the assets of the fund. Other funds are entitled to an exemption from income tax. I should be obliged if the Minister would explain to me why this section affords a deduction, whereas section 23ja and section 23f afford an exemption. Leaving aside whether an exemption or a deduction is granted, the fund is relieved from the payment of income lax to the extent of 5 per cent. of the cost of its assets. It is taxed at the rate of 10s. in the £1 on the excess of 5 per cent.
My proposed amendment is designed to bring under the judgment of the Committee the information which the Commissioner of Taxation has published in a Public Information Bulletin, to the effect that lump sum benefits are to be considered as proper up to £40,000 and pensions up to £5,000 a year. In addition, in relation to this particular fund, he has said that approval will be given for the terms and conditions of the fund only if aggregate annual contributions by all classes of persons with rights to benefits do not exceed, first, where the member is under 40 years of age, £400 a year; secondly, where the member is between 40 and 55 years of age, £800 a year; and thirdly, in other cases, £1,200 a year.
We have a scale representing the discretionary judgment of the Commissioner of Taxation, based upon age and the variable incomes that I have mentioned. These contrast markedly with the view already written into the legislation where we are dealing, not with the income of a superannuation fund, but with a taxpayer claiming deductions from his income when he makes contributions to a superannuation fund or to a life insurance company. There, irrespective of age, he is entitled to a deduction for his contributions of up to £400 a year. The most wealthy person in the country is not entitled to a deduction in excess of £400 a year. In this case there is a discretion vested in the Commissioner. He is entitled to say whether benefits are excessive or whether they should be approved having regard to the quantum of benefits. He lays down a scale but that will not bind him. Doubtless he will insist that, having been vested with a discretion, he will be entitled, in an individual case, if he thinks fit, to say that a man may put aside not £1,200 but, say, £3,000. Although the ordinary run of the mill fellow between 40 and 55 years of age will be entitled to put aside £800, in other cases the Commissioner may say: “1 think you can put aside £1,800”. That is the principle upon which the Labour Party is assisting the Government to write the law. 1 think it is a vicious principle.
My amendment suggests that the Committee should write into the legislation the scale that I have sketched in the amendment. It is open to detailed objection. My amendment does not purport to be a complete amendment, accompanied by all the proper alterations that should be made; it is put forward simply to indicate the sort of thing the Commissioner is laying down as the law. I invite the Committee to say whether it approves such a scale. If the Committee thinks that those amounts are appropriate, so be it. I am simply submitting it is improper that we should invest an official with the right to prescribe this scale. The right to prescribe a scale of this sort comes within the province of this Parliament.
– The Government opposes this amendment for some very good reasons which I shall state at some length. Section 79, which the amendment would affect, is designed to apply to a relatively modern development - ‘public superannuation funds conducted independently of employers and life insurance companies. These funds differ from the traditional funds in that the employer seldom contributes and people other than employees are admitted. However, the funds in general provide a community service in the field of superannuation. Under the section, these public funds, if they meet the tests, receive a special deduction equal to 5 per cent, of the cost of their assets. To qualify for this deduction a fund must satisfy specified tests and its terms and conditions need to be approved by the Commissioner.
The provisions are intended to apply only to bona fide funds established to provide superannuation benefits, that is, benefits on retirement from an occupation. They are not intended to apply to so-called superannuation funds that are used to accumulate tax free savings that may be wound up at the convenience of the members or which go beyond the reasonable superannuation needs of members. It is for this reason that a prerequisite of the application of the section is that the terms and conditions of the fund be approved by the Commissioner. In this respect the funds bear a strong resemblance to funds for selfemployed persons which have been covered by section 23 (ja) of the Act for a long time. A similar control has been exercised for 13 years over the funds covered by section 23 (ja).
It appears that the honorable senator finds section 23 (ja) all right but he objects to similar features in section 79. It is to be noted what the Ligertwood Committee said about funds that are covered by section 23 (ja). It said that the effective control of the exemption of these funds from tax rests in the hands of the Commissioner and that no abuse of the provisions had been brought to its attention. The control the section gives cannot be relinquished without the prospect of serious tax avoidance. The proposal contained in the amendment, that contributions of these funds and the benefits to be obtained from them should be limited, is not of any assistance. If this amendment is accepted there would undoubtedly be multiple membership of these funds and enormous amounts could be built up free of tax. In the absence of control, the assets of the fund could be lent back to the members interest free and the members could even recontribute these loans and qualify for the deduction of up to £400 per annum allowed for contributions to superannuation funds. While the Government sees advantages in the public superannuation funds that have become known in recent years, it is certainly not contemplated that a scheme leaving open the possibility of any of these devices I have mentioned should enjoy a tax concession. The amendment that would weaken the law to the extent of permitting these practices is not acceptable to the Government.
– I rise to seek some information from the Minister. I have not yet heard where the idea for a superannuation fund such as that described in proposed new section 79 originated. The Ligertwood Committee never suggested such a fund. Section 79 is to be an entirely new section. There was no debate on this subject in November 1964. I want to know who first suggested the idea of a section 79 fund. I know that the
Ligertwood Committee report was submitted to the former Commissioner of Taxation, Mr. O’sullivan. Did he suggest the fund, or did it evolve from Government policy which has not been the matter of public debate?
Secondly, I ask the Minister to give the Committee some information as to the principle whereby income which represents 5 per cent, of the cost of the assets in the fund is allowed as a deduction, while the balance is subjected to taxation at the rale of 10s. in the £1. I know of nothing parallel to that provision in the income tax law. I earnestly seek an elucidation of the principle behind this provision.
– This was a Government suggestion. The Treasurer (Mr. Harold Holt) in his second reading speech on the Income Tax and Social Services Contribution Assessment Bill (No. 3) 1964 said -
Turning to the exemption from tax of trie income of superannuation funds, the Government has found that these funds fall into three broad classes. There is the traditional class of superannuation fund to which the employer contributes for the benefit of his employees. There is on intermediate class that often caters for the general public, whether employees or otherwise, and which, while serving a useful role in providing retirement benefits for people not able to participate in the traditional type of fund, is, nevertheless, to some extent, used to accumulate tax-free savings for contributors. And there is a third class which, though in the guise of superannuation funds, can only be viewed as means of accumulating tax-free savings. As to the first class of fund, the Ligertwood Committee’s broad proposals are being implemented by the Bill. The income of funds that full within this class will, generally speaking, continue to bc exempt from tax, provided the existing rules regarding investment in public securities are observed.
The .Ligertwood Committee took the view that any superannuation fund that did not satisfy the tests it propounded should be taxed on its income to the extent that it exceeded the level cf its income for the year ended 30th June 1961. The Committee’s proposal would, in the Government’s view, Operate over-severely on a fund established after 30th June 1961, and, at the same time, disproportionately benefit a fund that had an unusually high income in 1961. The Government proposes by this Bill that a fund which does not meet the tests for full exemption will, in effect, bc exempt on its income up to an amount equal to 5 per cent, of the cost of its assets, if it meets somewhat different tests from those proposed for funds that may be fully exempt.
– I acknowledge with gratitude the fact that the Minister for Civil Aviation (Senator Henty) has repeated that speech to me. i have read it many times, but I have found it so confusing that I must be forgiven for suggesting that at times I have thought that the draftsman was deliberately confusing the position. I fail to understand why the Government is, for the first time, putting forward a third type of superannuation fund, which is based upon an entirely new branch of policy. My mind fails to register in that speech any indication why for the first time we are giving exemption to income which represents 5 per cent, of the cost of the assets of the fund and taxing the balance at the rate of 10 per cent. That, to my mind, does not reconcile with any known principle of either my party or of any other party. I acknowledge what the Minister has said, but I point out the confusion which still exists in my mind.
Clause agreed to.
Clauses 19 to 21 - by leave - taken together, and agreed to.
Clause 22 (Interpretation).
Wednesday, 8th December 1965.
– I forbore to pay particular study to loss companies, because I generally agree with the absurdity that there should exist in the economy an asset value for loss companies, but I remind the Senate that the Ligertwood Committee on this matter, referring back to the argument of the then Leader of the Opposition in 1944-1945 - then Mr. R. G. Menzies - adopted the viewpoint that if a company existed as an entity, irrespective of a complete transfer of shares, it should enjoy the advantages of profit and loss throughout its existence. I think that a rather artificial approach and I do not criticise the Government for departing from the Ligertwood Committee’s report. But the Government, when it embarked upon this matter, showed such an ill considered attitude that it prescribed a continuing qualification of 40 per cent, of shareholding, 40 per cent, of dividend rights and 40 per cent, of rights on a distribution of winding up, being held by the same shareholders in the year of loss as in the years when profits to recoup the loss were made, within the seven years bracket permitted by general income tax law. By doing this, it extended this provision as to a minimum percentage qualification from proprietary companies to public companies.
But where the Government did step out right beyond its depth was that it did not luke into account that there are cases were a company falls upon uneconomic times and, having suffered losses, the directors and the shareholders find that it is necessary to sell the undertaking in the course of legitimate business - not for the purpose of recouping the loss for income tax purposes at all but as a continuing business transaction - before the whole capital of the shareholders is lost. An agreement is then made by company A to sell to company B, but instead of encountering the usual legal fees and exorbitant stamp duties that are imposed by State stamp duty legislation on the transfer of the company’s property, the transaction takes the form of a sale of shares. The shareholders of company A sell their shares to company B. There is an ordinary commercial transaction. lt is absurd that if a loss is made in the accounts of the vendor company A for the last two or three years, that should not be available to the company when the new directorate and the new shareholders acquire their interest and carry on the business.
The Government has recognised that criticism and has now brought in a provision that it calls the continuing business criterion, which enables company B in those circumstances - even though there is not a 40 per cent, identity of shareholders in the sense I have mentioned - shares held, dividend rights and dissolution rights - to carry on the losses into its accounts. Recognising that position, there is in this legislation somewhere a provision not merely that the purchasing company should carry on the business of the vendor company but that the puchaser company shall in the year of income not have entered into a transaction that was not in the course of the business of the vendor company. 1 regret that I cannot in the whole plethora of provisions in this legislation pinpoint the actual paragraph without taking too much of the time of the Committee. I wish to abbre viate my remarks as much as possible. Perhaps the Minister will indicate the relevant paragraph.
– lt is in proposed new section 80.E.
– It is in paragraph (d) of sub-section (I.) of that proposed section, which reads -
By introducing those words “ or from a transaction of a kind that it had not entered into in the course of its business operations “ the Government has stultified the whole of the true purpose of this continuing business criterion.
Take an ironmongery company, w;th a sale of the undertaking to a new company by way of a sale of shares. The vendor company has been confined entirely to ironmongery. The nev/ company, having been established elsewhere, is retailing furniture. lt adds in one branch of ils big ironmongery store a furniture store, lt en’ers into a transaction of a kind that it had not entered into in the course of its business operations. By that silly device, the beneficial effect of this provision - which the Government accepted in a commercial spirit after representations as to the folly of the November 1964 legislation is lost. Not content with saying “ if the purchaser company carries on the same business as the vendor company “ - words of an indefinite connotation but which .he courts would be quite capable of interpreting - the Government adds this further criterion that in the year of profit the company shall not be permitted to enter into a kind of transacton which the vendor company had not entered into.
I seek an explanation from the Minister as to the meaning of the expression that I have read. For my part, 1 should think that the Government, to fulfil the purpose of the amendment, should eliminate those words and be satisfied that if a transaction of the sort I have mentioned is simply carried through in the form of a sale of shares, with one set of people taking over the undertaking of company A and absorbing it in company B as a genuine commercial transaction, with the undertaking being sold and not merely shares associated with a loss company, the purchasing company should be entitled to the benefit of theloss accruing in the accounts of the vendor for the purpose of offsetting the profits of the new company.
– I point out to Senator Wright that if the words to which he has referred were not included in proposed new section 80E(l.)(d) it would be possible for a profitable company to take over a loss company and divert its own profits in the form of service charges or other charges. It could have the amount transferred free of tax by using the losses of the taken over company.
– I intervene to raise very briefly another matter. I received late this evening a request from a responsible source to direct attention to a difference between the Bill and the explanatory memorandum. I refer to proposed section 80e (2.)(b). In the third last line of the provision there is a reference to “ section eighty of this Act “. In the third last paragraph on page 67 of the explanatory memorandum there is a reference to section 80e. There is a conflict between the explanation in the explanatory memorandum and the actual substance of proposed section 80e (2.)(b). I am not aware of the complete significance of the change and I cannot address an argument to the Committee on the subject. However, section 80 which is referred to in the Bill throwsback to a rather long-standing section which provides in the first instance for accumulated losses to be offset against profits down a period of seven years.
The whole question is whether there is an error in either the explanatory memorandum or the Bill. It may well be that the intention is, as stated in the explanatory memorandum, that the reference in paragraph (b) of sub-section (2.) of proposed section 80e should be to section 80e(1.). 1 do not wish to disturb the Minister or those advising him, but if there is any simple explanation, or if an undertaking can be given that the matter will be looked at,
I shall be grateful to have it. Obviously, either the explanatory memorandum or the Bill is wrong. I realise that this is rather a googly to bowl up at this hour of the morning without prior notice, but I understand some significance attaches to the difference between the term used in the explanatory memorandum and that used in the Bill.
– I am advised by my officers that one is more technically expressed than the other, but that both mean the same thing.
– Which one is the more technically expressed?
– The one in the Bill.
Clause agreed to.
Clauses 23 to 27 - by leave - taken together, and agreed to.
Section 83aa of the Principal Act is amended by omitting from sub-section (5.) the words “ Subsection (1.) of this section does not operate” and inserting in their stead the words “ Nothing in the preceding provision of this section operates “.
– I move -
Leave out the clause, insert the following clause - “ 28. Section 83aa of the Principal Act is amended -
by inserting in sub-section (1.), after the words ‘ this Division ‘ the words ‘ other than section 83 and 84 ‘;
by omitting from sub-section (1.) the words the twenty-second day of October, One thousand nine hundred and sixtyfour’ and inserting in their stead the words ‘ the twenty-second day of June, One thousand nine hundred and sixtyone’; and
by omitting sub-section (5.) and inserting in its stead the following sub-section - (5.) Nothing in the preceding provisions of this section operates to restrict the application of section eightyeight A or eighty-eight B of this Act, or of any other provision of this Division to the extent to which it provides for a premium paid by a taxpayer to be an allowable deduction.’.”.
We turn from the old subject to a subject to which I have twice made reference and upon which I shall seek by way of a division an expression of the judgment of the Committee. My amendment is couched in language which is designed, first, to deal with the large construction companies in the cities to which I referred this afternoon and which also are referred to in paragraphs 271 and 281 of the report of the Ligertwood Committee. Through a manipulation of the lease sections of the Act, such people have been enabled to construct improvements and to get the benefit of them by way of tax deductions. Instead of adopting the Committee’s recommendation in this respect the Government has eliminated any deduction on the part of a tenant for improvements and has exempted the landlord from any tax liability with regard to improvements made to his property during the term of the lease. That was not in accordance with the terms of the recommendation of the Ligertwood Committee, but we pass that by.
As a corollary to that the Government, without any recommendation from the Ligertwood Committee, moved to exempt premiums that are paid on leaseholds. This afternoon Senator Henty, in replying to the second reading debate, said that a premium was in the form of a capital payment. I am quite aware that there are English decisions to the effect that a premium paid to purchase a lease is a form of capital payment, but it has not been so regarded in Australia since 1936, when the income tax law firmly impressed upon this country the view that a premium paid for a lease was a pre-payment of rent. In post-war Australia, for purposes of rating, premiums have been taken into account together with rent in order to ascertain the annual rental value of premises.
I submit to the Committee that it is an old, archaic view that a premium paid to purchase a lease is a capital payment. I submit that it is, as defined in rating cases, of the nature of a pre-payment of rent and is a part of the yield that comes from the property. It may truly be considered, in our conception, as income.
– Key money, too?
– It is of the nature of key money.
– Before there are too many exclamations, perhaps I should take a little time to explain. I am simply putting forward the view that such a premium is a pre-payment of rent. I add that the Ligertwood Committee, having noted English decisions on the matter, said in effect: “ We think that the conception of a premium as income has been so fixedly implanted in the income tax law that we would not recommend its complete elimination “. Those are the words that the Ligertwood Committee used; yet out of the blue comes the Government with this idea to exempt the premium from taxability in the hands of the landlord and to deny the tenant a deduction from the premium that he pays for the leasehold. When I say to Senator Ormonde that it is in the nature of key money, there is an interjection on this side of the chamber. It is only murmured, but still I take notice of it because-
– The honorable senator must have regard to what has happened in State law. That concept has gone.
– Whilst eliminating the taxability of premiums paid to the landlord of commercial premises - service stations to oil companies and licensed houses to breweries-
– Do not mention those.
– They will come up when we are discussing the trade practices legislation. I wonder what the honorable senator will say then. I will be waiting to hear his views. We will see what unity of view can be obtained. I am against unfair advantage gained by undue exercise of property rights. I am all for fair protection of property rights. I am saying that the Government, without any recommendation from the Ligertwood Committee, denied taxability to the premium in the hands of the landlord and denied deductibility to the premium paid by the tenant. The grocer, the butcher or other small businessman who has built up his business on a short-term lease must sacrifice his goodwill and move his business elsewhere unless he yields to the terms which the landlord demands for renewal. If the landlord demands renewal on the basis that one-half of the old rent shall be premium and one-half shall be rent only, the landlord enjoys exemption for the premium and the tenant is denied the deduction. That is a principle that I cannot accept, unexplained.
If it is suggested that that is not in the nature of key money, let me put this to the Committee: The Government recognised that that was the nature of the payment, because it immediately said that a tenant of a commercial business will be able to bargain in the market and will be able to resist the landlord’s demand for a payment which is exempt from tax, and for which he gets no deduction. But in the case of a lease of private dwelling premises, the lessee paying a premium or a rent is entitled to no deduction. Therefore, there will be no off-setting factor to counteract the landlord’s demand for a premium or key money. It is suggested that this principle shall cease to apply to commercial premises but that it shall continue to apply to premises as to which the purpose is not to put them to the use of gaining taxable income - in other words, commercial premises. Then the Government goes on to use extraordinary language and says that where the taxpayer satisfies the Commissioner that he believed that the grantee intended a particular use of the property, the Commissioner may apply this section. That is just one of the pieces of legislation that is being enacted tonight in relation to private dwelling houses. My point, Mr. Chairman, if I may address it through you to Senator Anderson, who evoked this reference to private dwelling houses, is that it is quite plain that the Bill is only removing the taxability of premiums and the non-deductability of rents paid now as premiums in relation to commercial premises. Foreseeing premiums paid for private dwelling house premises, or key money - that was the term used under the rent control legislation - the Government has closed that gap and maintained the principle of taxability of premiums in the case of private dwelling houses but has exempted the premium in the case of commercial dwelling houses.
I put this proposal before the Committee and ask it to register its decision by way of a division. It involves also the other point as to whether this provision should apply back to June 1961 or November 1964. It will be noticed that in relation to leaseholds there is no retrospectivity beyond November 1964. With trusts, whenever they were created, there is; they pay a tax of 10s. in the £1, but the Commissioner is given discretion to take it off. If the Government so much abhors retrospectivity in taxation, it could do that in the case of a lease. These improvements which accrued by capital construction, which were expected to be enjoyed for 21 years and which were so outrageous that the Ligertwood Committee dealt with them in paragraphs 271 and 281 of its report were so obviously manipulations of the lease sections that I, in my untutored fashion, immediately thought they would contravene section 260 of the Act. Why does not the Government tax the income of a vested transaction of 10 per cent., but, if it has been a bona fide transaction entered into not for the purpose of evading tax, give the Commissioner a discretion to exempt the poor landlord for the remainder of the term of enjoyment of the benefit that accrues. I very much regret having to include all these submissions in one amendment. I have dealt with them rather hastily and, I confess, rather unclearly. However, I have done my best to explain them and will refrain from repeating them, whatever provocation comes from the Committee.
– Senator Wright is now endeavouring to amend the Act which was passed last year.
– Only by reference to sections of this Bill.
– These amendments are not acceptable. 1 will not cover again the points 1 made in my speech this afternoon. I referred to the lease premium provisions of the law, but there are a few more things I would like to say. The Ligertwood Committee queried the necessity for all the complex provisions on premiums and other aspects of leases. It pointed out that the purposes of the provisions were equitable and not fiscal. The provisions were frequently litigated and failed in their purpose of achieving equity amongst taxpayers. Taxpayers dealing from a stronger position - and this was not always the landlord - could obtain tax advantages over the other parties, and often did so. The provisions were also, as the Committee acknowledged, a very fruitful field of tax avoidance. After much careful and anxious thought the Government decided that there was nothing to be gained by preserving complex provisions that had been proven to be ineffective in their purpose of providing equity between taxpayers and which were, moreover, a source wide-spread tax avoidance. In the end it concluded that these matters of capital payments for land and premises should be left to be determined between taxpayers in the marketplace, having regard to their respective tax situations. The Government was also conscious that if the premium provisions remained in the law and the improvement provisions did not, it would not be long before the cost of improvements would be disguised as premiums so that tax could continue to be avoided in the ways referred to by the Ligertwood Committee.
There simply is no evidence that the incidence of lease premiums is increasing or will increase because of the new tax situation. On the contrary, there is evidence that in some cases additional rent is being substituted for premiums. There is also evidence that in other cases premiums requested are being reduced to the net amount after tax that they would have produced to the landlord under the old law. This practice in relation to premiums does not entail any inappropriate tax arrangement, but it has the advantage of leaving both parlies in approximately the same position as they would have been under the old law.
I would stress that the provisions enacted last year have no more than a marginal effect upon revenue because, under the old provisions, the tax received on premiums was counter-balanced by deductions allowed for them. Where the transactions arc between public companies - and this is where the largest transactions occur - there is no effect at all upon revenue. The advantage gained as a result of the changes concerning premiums is that they are complementary to the provisions preventing tax avoidance in relation to leasehold improvements.
As to leasehold improvements, the Government is completely unable to accept that there should be a retrospective withdrawal of income tax deductions going back more than four years. This would mean that many assessments that had been settled for a long time would have to be re-opened and taxpayers involved in substantial and unexpected taxation liabilities. lt was in recognition of the fact that many people had, in completely bona fide transactions and in the light of the tax law as it then stood, committed themselves to expenditure on improving leased land, that the Government continued the old lease provisions in operation in respect of transactions entered into on or before the date the amending legislation was introduced last year, that is, 22nd October 1964. To alter this situation now would be regarded as a flagrant breach of faith on the Government’s part and I do not understand how the honorable senator comes to move an amendment that would penalise retrospectively persons who have had no tax avoidance intent when they effected improvements on property held on lease.
– I would not let this matter go to a vote without saying something on it. When the system of premiums and allowable deductions to the tenant was settled at the end of last year, the Opposition considered the matter very carefully and decided to approve the change. Now, within a year, we are invited to revert to the old position. In the amendment, paragraph (a) really means the restoration of the taxing of premiums and (c) seeks to reduce deductions by tenants when they have paid premiums. Paragraph (b) is the one that seeks to cut out. deductions for improvements as from 22nd June 1961 instead of from October 1964 as provided in the Bill.
I support what has been said by the Minister for Civil Aviation (Senator Henty) in relation to this matter. We of the Opposition see no need to change at present. 1 am not going into the argument whether a premium is a capital item as against rent which is a maintenance or a revenue item, as it were, but it is true that there could be circumstances where the argument that a premium is a capita] payment could be sustained where there is a licence or where there are particular features of goodwill.
– Licence and goodwill do not enter into this at all. This is a premium paid for the grant or assignment of a lease, not for a licence or goodwill of a business.
– Yes, but unfortunately these things come together and that is part of the argument that it is rent and has caused a change. At all events, the Opposition is not disposed to support at this stage a reversion to the old order. My own inquiry leads me to believe what the Minister has expressed - that the change will not affect the revenue at ali; but the proposal in paragraph (b) to reverse the position to that of 22nd June 1961 in relation to improvements does, in the view I have made and the note I have taken, involve the re-opening of assessments for the years 1962, 1963 and 1964. That could not be done without express further parliamentary approval. The amendment would need not only to make the change bridging the operative period back from October 1964 to June 1961 but would also have to provide expressly that the assessments of those years could be re-opened. I am sure the honorable senator who has proposed the motion would not favour that particular provision or that element of retrospectivity with all the difficulties that would spill out of it. I am not saying that if it could be established that, as between 17th August 1961 and the end of 1964 when the amending Bill came in, people had proceeded with the type of activity which involved the erection of expensive improvements pursuant to which the lessee gets deductions and the landlord pays only on the value at the end of the term, something should be done about it. But 1 would not be prepared to move to make the change in that way unless I was informed that there were particular instances and I understand from the Minister that the Department has no knowledge of any. He has no knowledge and I take it that his knowledge is the Department’s knowledge.
– My officer states that he has no knowledge of such instances.
– Then in those circumstances there would be nothing under the amendment to pick out in relation to the period from the time the Treasurer has announced that the recommendations of the Committee would be operative until now.
– But the Department will not deny that there are millions of pounds of tax involved in the continuance of these deductions after October 1964.
– Those that were created prior to 1961?
– Yes, or 1964. I am saying that took place in the period.
– The Minister has said that they have no knowledge of that. If that is the fact, then these deductions will continue only after October 1964 in respect of arrangements made prior to 1961, if my information is correct.
Clause agreed to.
Proposed new clause 28a.
– 1 move -
After clause 28, insert the following new clause: - “ 28a. Section 94 of the Principal Act is repealed and the following section inserted in its stead: -
– (J.) Where a partnership is so constituted or controlled or its operations so conducted that any partner has not the real and effective control and disposal of his share of the net income of the partnership, the Commissioner may assess the additional amount of tax that would be payable if the share of that partner, or of all such partners if more than one, had been received by the other partners in proportion to their respective shares in the net income of the partnership and had been added to and included in his or their assessable income, and the partnership is liable to pay the tax so assessed. (2.) Where the provisions of this section are applied to a share of the net income of a partnership, that share shall not be included in the assessable income of any partner. (3.) For the purpose, of this section but without limiting its application, a partner shall be deemed not to have the real or effective control and disposal of any money received by him if the money is applied to meet the private or domestic obligations of any other partner or if the partner was an unmarried relative of any other partner, and was under the age of sixteen years on the last day of the year of income of the partnership. (4.) If, during the year of income of the partnership, a partner who was under the age of sixteen years on the last day of the year of income of the partnership rendered any services in the production of assessable income of the partnership, this section applies to the share of that partner in the net income of the partnership, reduced by the amount that would constitute reasonable remuneration by way of salary or wages for those services if they had been performed by an employee of the partnership.’.”.
I shall simply content myself with a short statement, because I dealt with this matter to some extent at the second reading stage. I pointed out then that when the November 1964 legislation was introduced it incorporated a provision covering some six pages to replace a short section of about half a page. If my amendment is opposed by the Government, I invite an explanation of the existing section 94, which extends from page 212 to page 218 of my copy of the statute. I am quite unable to read any sense into the section. It is the most involved section that one could possibly find - all for the purpose of imposing on the share of a partner who has not real and effective control of his or her share of the income a tax of 10s. in the £1, unless the discretion of the Commissioner is exercised in the sense that he says that it is not reasonable that the section should apply.
I pointed out earlier that the Ligertwood Committee did not recommend this provision but one which contained the sense of my amendment. The Committee’s recommendation was a little different from my amendment; my amendment is much simpler. My amendment simply provides that, where a partner is not in real control of his income, then the whole of the partnership income shall be attributed to the other partners, whether or not it can be said of them that they have control of that share of income. It adds the provision that was introduced by the Government and which states that, where a partner is under 16 years of age, he shall be deemed not to have real control of his income. I have adopted so much of the Government’s legislation as is involved in that idea. However. I do not want it to be thought that I did not note that the recommendation of the Ligertwood Committee as to infant partners was that an unmarried relative who was under 21 years of age should be deemed not to have the real control of his income. I take some pride in the fact that within five days of the Ligertwood Committee’s report being published I said that such a proposition was acceptable to me only if confined to infants’ under 16 years of age. However, when the Government reduced the age from 21 years to 16 years, it did nol confine the provision to unmarried relative infants but applied it to an infant whether he is a complete stranger to the other partners or not. I am not objecting to that provision; I have accepted it for the sake of peace.
In the last sub-clause of my amendment 1 have accepted the Government’s proposition - it is a fair proposition - that if an infant partner works in the- partnership and he is deemed by this section not to have real control of his income, at least he should be entitled to such share of the profits of the partnership as would represent a reasonable remuneration for his services. I submit that my amendment accepts the principle which underlies the recommendations of the Ligertwood Committee and the provisions of the Government’s legislation, lt adopts a simple principle whereby partnerships may know where they are. In this case we get over the Coldstream decision of 1943, the overcoming of which cannot have been too urgent seeing that it was allowed to remain as the law for some 22 years. We will get over that decision, which bedevilled section 94, by simply placing the liability for partnership income, where one partner has not real control of his income, upon the other partners, whether they have that control or not. This makes a great difference to the taxability of the partners, particularly when we take into account the fact that the Government’s plan means a tax of 10s. in the £1 on this share of the income even though that share of income in ordinary circumstances would attract a tax of 2s. or 3s. in the £1. I regard this as being iniquitous legislation. It is iniquitous to suggest that, just because a partnership is so arranged by the terms of its deed or because the Commissioner decides that a partnership has been so conducted that a partner has not real and effective control of his income, that income should be confiscated to the extent of 10s. in the £1. If our tax law is to be got into proper shape and is to be made effective, it must be fair. The amendment that I have moved is a much fairer and much simpler proposition than that which is contained in the Bill.
– This amendment cannot be accepted. I shall explain as briefly as I can the reasons for adopting that attitude. The general aim of the amendment may be to give effect to what the Ligertwood Committee recommended. However, it does not precisely do this. Section 94, which the amendment proposes to repeal, incorporates important features of the Ligertwood Committee’s recommendations. It applies where a partner does not have real and effective control and disposal of his share of the partnership income. It deems a partner under 16 years of age - not 21 years as recommended by the Ligertwood Committee - to lack real control to the extent that his share exceeds the value of any services to the partnership.
The amendment would allow the section to operate in relation to a child under 16 years of age only if he was unmarried and was related to another partner. The ways around this provision are many and easy. If you were a parent you would have your interest in a partnership through a private company or a trust instead of directly. You could admit your children to the partnership in the happy knowledge that they would certainly not be relatives of the company and you could make sure that they were not relatives of the trustee of your trust. Another way would be for the children to have their interests in the trust, the trustee of which was not related to another partner.
Another basic objection to the amendment is the suggested way of calculating the tax. Admittedly this follows the Ligertwood Committee’s suggestion, but it could easily be avoided by arranging for each partner to lack control of some part, however small, of his share of the partnership income. This arrangement would render the provision completely ineffective. The amendment, if it could be made effective, could produce rates on the uncontrolled income higher than 10s. in the £1 and perhaps as high as 13s. 7d. in the £1. This could happen if a partner in control had a taxable income of £4,400 or more. If this partner did not have any of his children in the partnership but other partners had children in it, I just do not see what fairness there would be in using the level of his taxable income to calculate the tax payable on the shares of partners who were the children of partners having a much lower rate of tax. The amendment is deficient in other respects also. It takes no account of the fact that very commonly the shares of children come to them through a trust or a series of trusts. Other provisions of the law applying the rate of 10s. in the £1 do not necessarily apply to the income of the trusts, and the use of trusts would render these provisions ineffective. The provision proposed by the honorable senator would not be simple in its operation. As I have shown, it would leave open various ways for the tax avoider. I do not think it provides the solutions that the honorable senator seems to be seeking and I know that it does not provide solutions that the Government could regard as adequate.
– I refer to the Minister’s observation that if each partner’s share reaches £4,500, tax will be payable at the rate of 10s. in the £1, according to the ordinary graduated scale. If the share in the partnership exceeds £4,500, tax is payable at 13s. 7d. in the £1. Therefore the Government’s legislation will give an advantage to partnerships, where each partner’s share exceeds £4,500 or £5,000, to reduce the ordinary rate to 10s. in the £1. In my view, it is an extraordinary situation for which there could be no justification whatever.
– My adviserstell me that tax is payable at whichever rate applies - 10s. in the £1 or 13s. 7d. in the £1.
Proposed new clause 28a.
– I move -
That the following new clause be inserted in the Bill- “28a. Section 99a of the Principal Act is repealed.”.
The Ligertwood Committee considered the question of trusts and the relevant parts of the Ligertwood Committee’s report appear from paragraph 706 onwards. The Committee devoted its attention to section 102 of the Act, which relates to the case where a parent settles property for the benefit of unmarried children. The Committee points out that by various decisions of the courts section 102 has been greatly eroded. The Committee recommended major surgery for section 102, but when the amending legislation was introduced in October 1964, not a single amendment was made to that section. Having dealt with section 102, the Committee recommended -
To complete our review, we refer to a type of case not covered by section 102, namely one where there is no beneficiary presently entitled to the income of a trust, and where in consequence the income is assessable to the trustee under section 99 at the rate applicable to that income. If the trust deed contains provisions under which the settlor may vary its terms in favour of unmarried relatives who, in the year of income, are under the age of 21 years, then in our view the income should be assessed at the flat rate of, say, 10s. in the £1.
The Committee recommends -
That a new section 99a be inserted in the Act to provide that if a trust deed con tains provisions under which the settlor may vary its terms in favour of unmarried relatives who, in the year of income are under the age of 21 years, the income should be assessed at a flat rate of tax of 10s. in the £1.
The legislation introduced in October 1964, containing a new section 99a, does not refer to trusts, the provisions of which are that a settlor may vary its terms in favour of unmarried relatives, ft applies to trusts under which, in all circumstances, the income is not presently payable to any person and, in respect of those matters, unless the trust is created by a will or codicil or order of the court, or an intestacy, the section applies. It is intended to impose upon the income of all of those trusts, even though they be created before June 1961, or before October 1964, tax at the rate of 10s. in the £1, however exiguous may be the income which is the subject matter of the trust.
The Minister in his second reading speech referred to exploitation of the position whereby income derivable from these trusts was being broken up so that trusts were created with the design of keeping the income below the maximum taxable amount. The Minister pointed out that multiple trusts were being created to exploit that position. 1 would resist in no sense any proposal that would defeat that exploitation. However, family trusts are created in the course of providing an accumulation of income until a particular person commences a university course; until a handicapped relative comes out of a psychiatric home; or until the father of an infant dies and the infant becomes in need of income. In my view the section we are discussing is thoroughly disruptive of a freedom which a person should have to provide for ordinary family circumstances and to accumulate income for a proper period appropriate to those proper family circumstances.
I think that to impose a tax on trusts, without any recommendation from the Ligertwood Committee, where the income is not payable presently to a beneficiary, is simply iniquitous. It is more iniquitous where it applies With retrospective effects. The situation is quite distinct from that of leases. The section does not say that it shall not apply to trusts created before November 1964, as was done in the case of leases. In the case of trusts it is said that ordinary tax shall apply to these family trusts. But if the
Commissioner of Taxation is of the opinion that it would be unreasonable that this section should apply in relation to that trust or in relation to that area of income then it shall not apply.
The Commissioner has been good enough to reveal his mind in regard to these trust estates. It will rejoice the soul of those proud parents who wish to have the right to dispose of their property according to what they think are their family obligations to be reassured in this Public Information Bulletin that if the Commissioner is convinced that there are sound practical reasons for the creation of this family trust he will exercise his discretion and absolve the parents concerned from the 10s. in the £1 tax. The Public Information Bulletin reads -
A settlor wishing to benefit more than one person may choose to do so through separate trust estates for each of the persons. For example, a grand-parent may contribute a separate trust estate for the benefit of each of his grandchildren. A parent may da this in relation to each of his children. In these cases provided there are some practical reasons (unrelated to income tax) for the existence of the separate trust estates and no special circumstances exist the discretion will be exercised in relation to each trust estate.
I protest in the name of proper family responsibility against giving to an official a discretion to say whether or not a trust is appropriately created for proper family circumstances. That is what the Commissioner assumes to control by this discretion. Then, irrespective of the amount of the income from the trust a penal rate of 10s. in the £1 is fixed, to be relieved only in the discretion of the Commissioner. I submit that the proposal is completely improper. It is not supported by one syllable in the report of the Ligertwood Committee. The recommendations of the Committee, so far as they are relevant to section 102, which might have attracted amendments but none was forthcoming. So far as it is relevant here, it was directed only to trusts which contained a provision whereby the settlor might vary the trusts for the benefit of an unmarried relative. As I have pointed out, this taxation is imposed upon all trusts whether or not they contain that provision, where the income from the trust is not presently payable to the beneficiary. That circumstance may be well justified by every variety of family situation that could arise. 1 move for the repeal of section 99a.
.- This amendment, if adopted, would mean that no steps whatever will be taken against trusts set up for tax avoidance purposes. The amendment would repeal the provisions put in last year to prevent avoidance and would, 1 have no doubt, result in the abuses of the trust provisions becoming much more acute. With all the publicity that has been given to the question, repeal would, in my view, lead to even more widespread avoidance than we were experiencing before 1964. Acceptance of the amendment would be regarded as evidence that the Government is not prepared to face up to providing remedies against tax avoidance and restoring equity amongst taxpayers. I need hardly point out that only certain sections of the taxpayers have been able to organise their affairs so as to take advantage of trust arrangements to avoid tax.
I know there has been criticism of the special provisions in relation to trusts and of the discretionary powers under them. Representations for the repeal of these provisions and the making of other amendments to the law have been received. These have been carefully considered, just as the whole question was closely examined by the Government when the decision was made to amend the law in 1964. The simple fact is that no more satisfactory solution than that adopted has been put forward.
We do not like to have to rely on the’ discretionary approach but -we see no reasonable alternative to it. The Government is quite sure that thelaw will be administered wisely and carefully by the Commissioner. He has, in the Public Information Bulletin, set out the general line of approach he is taking and in the exercise of his discretionary power he will have regard to any other special features not mentioned in the Bulletin. As a further service to taxpayers and trustees the Commissioner is, upon request, advising them in relation to the facts of specific cases. In short, the Government is confident that the new provisions will operate in a reasonable and proper manner and in the way intended by it. But the Government does not look upon the income tax law as static. If its intentions are not achieved, the provisions can, after trial, be looked at again in the light of the circumstances then known.
Proposed new clause 28a.
– I come to my next amendment, which has been prepared on the assumption that the Committee would not vote for the repeal of section 99a in its entirety. The section reads - (1.) This section does not apply in relation to a trust estate in relation to any year of income if the trust resulted from -
I seek to add a further paragraph, and accordingly I move -
That the following new clause be inserted in the Bill- “28a. Section 99a of the principal Act is amended by inserting after paragraph (b) of . sub-section (1.) the following paragraph -
this section shall not apply to a trust created before the twenty-second day of October, One thousand nine hundred and sixty-four.”
I move that amendment simply for the purpose of seeing whether the Committee considers that such a section as this, which imposes a penal tax, ought, as in the case of leases, not apply to trusts created before 22nd October 1964.
Senator HENTY (Tasmania- Minister for Civil Aviation) (1.7 a.m.]. - This amendment would exclude from the 1964 provisions relating to trusts any trust set up for tax avoidance purposes before 22nd October 1964. I would like honorable senators to keep in mind that while the 1964 provisions apply to the income of trusts created before the provisions were introduced on 22nd October 1964 they do not apply to income derived before that date. Indeed, only income derived after the beginning of the 1965-66 income year may be taxed under the 1964 provisions. There is, therefore, no retro-active application of the law to earlier years of income.
The 1964 provisions were introduced to counter avoidance then prevailing as well as future avoidance. It would be manifestly unfair to treat tax avoidance trusts created prior to October 1964 differently from trusts of the same kind set up after that date. Not only would the earlier trusts continue to enjoy an advantage denied later ones but there may be power to add to the trust assets so that greater and greater advantages would accrue. Anybody lucky enough to have such a tax avoidance trust in existence before October 1964 would not have to bother about setting up new ones likely to be subject to the new provisions.
It is said that tax avoidance trusts in existence before October 1964 cannot be altered so as to escape the new provisions. But most of them will be able to find completely unobjectionable means of escape. Certain courses will be unobjectionable because the beneficiary will become liable for tax on an appropriate basis. For example, income may be applied for beneficiaries under discretionary powers of the trustees. If this is done it is aggregated for tax purposes with other income of the beneficiary and the full rate of ordinary personal tax paid. In other cases, the nature of the trustee’s investments can be changed, thereby reducing the income of the trust and diverting it into channels where it will be taxed.
Many of the persons associated with tax avoidance trusts have already derived very substantial tax advantages and the Government is unable to agree that these advantages should be extended into the current and future years. The amendment is accordingly unacceptable to the Government.
Proposed new clause 28a.
– I move -
Before clause 29, insert the following new clause: - “ 28a. Section 99a of the Principal Act is amended by inserting after paragraph (b) of sub-section (1.) the following paragraph: -
a trust created before the twenty-second day of October, One thousand nine hundred and sixty-four, unless that trust contained a power of revocation or alteration exercisable so as to avoid the penal consequences of this section.’.”.
This is an endeavour to apply section 99a so as to exclude all trusts created before 22nd October 1964 unless those trusts contained a power of revocation or alteration exercis able so as to avoid the penal consequences of this section. It is entirely wrong for Senator Henty to use the argument that these provisions will enable continued enjoyment by trusts designed to avoid tax if they were created before October 1964. My proposed amendment assumes that it will be accompanied by an appropriate amendment designed to destroy the trusts to which I have referred and any other trusts that come within the spirit, even though the faint hearted think they do not come within the letter, of section 260 of the Principle Act. That section provides -
Every contract, agreement, or arrangement made or entered into, orally or in writing, whether before or after the commencement of this Act, shall so far as it has or purports to have the purpose or effect of in any way, directly or indirectly -
altering the incidence of any income tax;
relieving any person from liability to pay any income tax or make any return;
defeating, evading, or avoiding any duty or liability imposed on any person by this Act; or
preventing the operation of this Act in any respect, be absolutely void as against the Commissioner . . .
These provisions do not in any way seek to create benefits for people who have created tax avoidance trusts.
I have failed to get the Committee to exclude from the penal tax imposed on trusts, those trusts that were created before October 1964. The trusts of which we are speaking are trusts in which the income is not presently payable to any person. Usually the beneficiary is a lunatic, a person of feeble mind, a person of infancy or a person incapable of surrendering his rights in law. Therefore, neither the beneficiaries by agreement, nor a court under its jurisdiction in some States, can revoke such a trust. It becomes, then, subject to the 10s. in the £1 penal tax unless the Commissioner’s discretion can be invoked.
Surely, in the name of all that is just, a penal section such as that should not apply to a trust which is created before the legislation becomes effective when the trust instrument does not allow the revocation or variation of the trust so as to restore the position to what it was before the transaction was entered into. That is the spirit of my amendment. It is not designed in any way for the purposes of tax evasion. It is designed simply to get a degree of equity, based upon sound principles adopted by Equity Courts and not trusting to the discretion of the Commissioner of Taxation.
– Would there be many of those?
– I have no idea. In this debate I speak neither from personal interest nor from the interest of any client whose business is within my confidence. To my knowledge, no client has any trust in this category in my confidence. However, having practised as a solicitor and barrister for 35 years 1 have sufficient experience of family trusts to know that these things are all too common. We should not allow isolated instances of confiscatory injustice to pass because of inattention, inadvertence or incompetence on the part of this Committee.
– This amendment would exclude from the operation of the 1964 provisions relating to trusts any trust set up for tax avoidance purposes before 22nd October 1964, unless the trust contains a power of revocation or alteration enabling it to avoid the operation of the 1964 provisions. The 1964 provisions were introduced to counter tax avoidance. In practice, they will apply only to those trusts. Persons who have created such trusts have, for the most part, already achieved considerable tax savings and it would be manifestly unfair to allow them to avoid still further amounts of tax while other persons are denied corresponding advantages. There is also the risk that the trustees may accept further assets into the trusts and increase to a greater extent the advantages already enjoyed.
Even where the trust deed cannot itself be revoked or altered, there are generally quite unobjectionable means of avoiding the effects of the 1964 provisions. The unobjectionable courses include the application of income for the benefit of a beneficiary who then becomes liable for tax at the full rate applicable to his personal income, including the income applied for his benefit by the trustee. There are probably other ways open such as changes in the investments of the trust in a way which diverts the income into channels where it will benefit the same beneficiary but where it will also be taxed at the full rate appropriate to the income of the beneficiary. The 1964 provisions do not apply to income derived before the 1964-65 income year and there is thus no retro-active application to the income of earlier years. The 1964 provisions will, however, in appropriate cases apply to the income of the present and future years, but persons who enter into trusts having tax avoidance effects cannot reasonably expect to have the tax advantage preserved to them for the full terms of the trust. The Government is unable to accept the amendment.
Clause agreed to.
Remainder of Bill - by leave - taken as a whole, and agreed to.
Bill reported without amendment; report adopted.
Bill (on motion by Senator Henty) read a third time.
Senate adjourned at 1.19 a.m. (Wednesday).
Cite as: Australia, Senate, Debates, 7 December 1965, viewed 22 October 2017, <http://historichansard.net/senate/1965/19651207_senate_25_s30/>.