previous
next



  ― 140 ―

Reservation to Chapter 10: Personal Income Tax: The Taxpaying Unit

In paragraphs 7.5–7.33 of its preliminary report (now paragraphs 10.1-10.28 of the full report) the Committee discussed matters concerning the ‘unit’ to be chosen for income taxation, namely, the individual, the married couple, the family, with ‘family’ narrowly or widely defined. After reference to overseas systems of taxation, the difficulties inherent in an elective system for joint returns, and the problems of an appropriate rate scale, the Committee concluded in paragraph 7.34 of its preliminary report: ‘The Committee is persuaded of the equity arguments for providing an option that recognises the reality of one large category of family relationship better than does the individual relationship, and therefore recommends that the government prepare a detailed scheme for an elective family unit system for public examination.’ The ‘large category of family relationship’ was not defined by the Committee and in what sense its ‘reality’ existed for taxation purposes was not specified. This conclusion has been carried over into the full report (see paragraph 10.33) and it is to this that I wish to make a reservation.

The Committee has not overlooked the use of the family relationship for the prevention of income-splitting between the family members (including children) and the avoidance of death duties and has made detailed recommendations elsewhere in this full report (which time did not allow for in the preliminary report) to prevent the exploitation of the procedures which have been employed to these ends. As I have endeavoured to make clear in a paper titled ‘Aggregation of Incomes of Husband and Wife’ which accompanies this full report, the aggregation of the separate incomes of husband and wife never originated as a means of inhibiting schemes for income tax avoidance; and the propriety of aggregation should be considered quite apart from the activities of those who seek to abuse the taxation system for the reasons which I have set forth in the paper above referred to.

Upon much further consideration than I was able to give in the very limited time which was available in getting out the ‘broad brush’ preliminary report, I am firmly convinced that the Committee's conclusion is unsatisfactory and should not have been made. In the paper referred to above I have discussed in some detail the historical basis of the aggregation of the incomes of husband and wife in the United Kingdom and the United States and have pointed out that in Australia, with the exception of a very brief period in the early income taxation period in Tasmania, Australian taxation systems of income tax have consistently rejected the aggregation of the respective incomes of the spouses. I have also opposed their aggregation on the grounds of unfairness and for a number of other reasons which appear in the paper.

I have also observed that the recent Canadian Royal Commission on the Status of Women (1967-70) found against such an aggregation of incomes but recommended an optional system for a joint return which would result in a tax advantage for those married couples who elected to be taxed jointly.

Before the inevitable expenses of any public examination of a detailed scheme for an elective unit system should be seriously contemplated, it seems to me that a rate system for the taxation of the aggregated incomes of husbands and wives and its


  ― 141 ―
consequences both to the taxpayers and to the Revenue would have to be given close consideration. In all taxation systems which embody an optional system of aggregation for the taxation of husbands and wives, everything hinges upon the rate scale and a special rate scale is sometimes devised for optional use. The word ‘elective’ presupposes a choice for the taxpayers not only between the individual and the joint return and assessment but also between different rate scales which could produce monetary results which are, on the one hand, advantageous to the taxpayers and, on the other, disadvantageous to the Revenue.

If a rate system were constructed so as to result in both spouses paying a higher total amount of tax than they do under an individual unit base, this would be not only an unacceptable approach in Australia but also one which, for reasons which I have given, is unjustifiable. If it were to result in the payment of less tax than otherwise would be recoverable if each spouse were individually taxed, naturally it would meet with wide acceptance on the part of the taxpayers but at the same time would bring about a substantial loss to the Revenue. If it were at all possible to ensure that the tax upon the aggregated incomes would not bear more heavily upon each of the taxpayers, husband and wife, than the existing individual unit system, an eventuality which would lead to a great deal of complexity for both the administration and the taxpayers alike, then the change from the existing system would be an expensive exercise in futility.

In my opinion, in the world of today a married woman should be treated both under the general law and in the taxation system as an individual in her own right and, in relation to the income which is both morally and legally her own, she should pay no more and no less tax than if she were a single person.

For these reasons I have come to the conclusion that a public examination of the kind recommended in the preliminary report—and repeated in the full report—should not be embarked upon.

K. W. Asprey

previous
next