no previous

[Front Matter]

  ― i ―



  ― ii ―

  ― iii ―

  ― iv ―

  ― v ―

  ― vi ―

  ― vii ―

  ― viii ―

  ― ix ―

  ― x ―

  ― xi ―

  ― xii ―

  ― xiii ―
List of Tables  xv 
Preface  xvii 
I. Reasons for a Review 
II. Committee's Approach 
I. Historical Perspective 
II. International Perspective 
I. Terms of Reference and their Interpretation  11 
Fairness  12 
Simplicity  15 
Efficiency  16 
Other Objectives  17 
II. Appraisal of Particular Taxes  17 
Personal Income Tax  17 
Company Income Tax  18 
Capital Gains Taxes  18 
Estate and Gift Duties  19 
Wealth Taxes  19 
Taxes on Goods and Services  19 
Narrow Based Taxes  19 
Broad Based Taxes  19 
Grants  20 
III. Alternative Tax Systems  20 
I. The Statistical Situation  24 
II. Tax and Non-tax Policies in Redistribution  29 
III. The Distributional Objective  32 
I. The Options  35 
II. Immediate and Long-term Perspectives  37 
I. Taxes and Inflation Control  40 
II. Effects of Inflation on Taxes  47 
Tax Payments  48 
Tax Drift  48 
Total Tax Receipts  48 
Tax Mix  48 
Income Tax Rates  49 
Concessional Allowances  53 
Estate and Gift Duty  55 
Tax Base  56 
Need for Further Investigation  58 
I. Problems of Definition  59 
The Concept of Income  59 

  ― ii ―
Capital Gains 
Bequests and Gifts Received  60 
Lottery and Casual Gambling Winnings  60 
Retirement Benefits and Compensation for loss of office  60 
Compensaton for physical injury to person received in a lump sum or for injury to reputation  61 
Non-money Income  61 
Deduction of Expenses  62 
Expenses Incurred in Deriving Income  62 
Other Deductible Expenses  62 
Exempt Income  63 
Annual Accounting  63 
Income of Particular Industries and Activities  63 
Income Moving Through Intermediaries  64 
International Aspects  64 
II. Specific Issues  64 
Compensation for Physical Injury to the Person  64 
Compensation for Injury to Reputation  66 
Imputed Rent of the Owner-Occupied Home  66 
Costs of Travel to and from Work  69 
Child-Minding Expenses  70 
Expenses of Income Earning Activities Carried on at Home  72 
Subscriptions to Trade and Professional Associations  74 
Income Protection Insurance Premiums  74 
Self Education Expenses  76 
Dissection and Apportionment of Composite Receipts and Outgoings  76 
I. Cash or Accruals Basis  81 
II. Accruals Tax Accounting and Financial Accounting  83 
Holding Charges  84 
Work in Progress  84 
Tax on Basis of Financial Accounting Principles  85 
III. Provisions and Accrued Expenses  86 
Long-service Leave and Holiday Pay  86 
Other Provisions for Liabilities  89 
Provision for Doubtful Debts  90 
IV. Depreciation and Amortisation of Fixed Assets  90 
Plant and Equipment  91 
Buildings  92 
Classes of Buildings which should qualify  95 
The inclusion of Existing Buildings  95 
Treatment on Change of Ownership  96 
Demolition and Damage  96 
Effect on Revenue  97 
Leasehold Improvements  97 
Other Assets and Costs of a Capital Nature  98 
V. Trading Stock  98 
Definition of Trading Stock  99 
Land Held for Resale  100 

  ― iii ―
Plant Spares and Consumable Stores 
Shares, Debentures and Similar Assets  100 
Methods of Valuing Trading Stock  101 
Cost Price  101 
Market Selling Value  103 
Replacement Price  103 
Disposal of Trading Stock  103 
VI. Recoupment of Losses  106 
Carry-back of Losses  106 
Carry-forward of Losses  108 
Exempt Income  109 
Effect of Dividend Income  109 
VII. Implications of Inflation for Business Income  110 
VIII. Sundry Costs of Business Operation  113 
Lease Transactions  113 
Expenditure on Repairs to Income-producing Property  113 
Professional Libraries  114 
Travelling and Entertainment Expenses  115 
Anti-pollution and Ecological Expenditures  115 
IX. Conclusion  116 
I. Employment Income  117 
Fringe Benefits  117 
Adequacy of Present Law  118 
Kinds of Benefits  119 
Housing  119 
Board and lodging  119 
Use of motor vehicle  120 
Goods and services supplied at discount  120 
Low interest loans  121 
Prizes and gifts  121 
Stock option and stock purchase schemes  121 
Goods and services supplied by others and paid for directly by the employer  122 
Allowances made available to employees for travel and entertainment expenses  123 
Tax Instalment Deductions  123 
Other Issues  124 
Salary and Wages Adjustments  124 
Travel and Removal Expenses  124 
Travel within employment for a temporary purpose  125 
Travel and removal expenses within an employment for a more permanent purpose  125 
Travel and removal expenses to take up a new employment  126 
Living away from home  126 
Study leave expenses  126 
Payments to obtain Release from Employment Contracts  127 
Standard Deduction  128 
II. Investment Income  128 

  ― iv ―
I. Overseas Experience  131 
United Kingdom  131 
United States  132 
South Africa  133 
France  134 
Canada  134 
II. Review of Possible Reform  134 
Questions Arising over the Taxation of Family Units  135 
Individual Taxation with an Election System  137 
Restrictions on Right of Election  137 
De Facto Relationship  138 
Separated or Divorced Spouses  138 
A Proposal for Public Examination  139 
Reservation by the Chairman  140 
Income-splitting and Minor Children  145 
Income from Gifts of Capital  146 
Partnerships, Inter-Vivos Trusts and Arrangements Achieving Similar Income-sharing Results  148 
Excessive Payments for Services or Benefits  151 
Alienation of Income  152 
Family Companies  152 
Section 260  153 
Distributions of Income under a Legal Obligaton  154 
Distributions of Income under a Moral Obligation  155 
Retrospectivity  155 
Reservation by R. W. Parsons  157 
Reservation by K. Wood  161 
I. Concessional Deductions: Dependants  163 
Dependent Spouse  163 
Other Adults  165 
Dependent Children  165 
Student  166 
II. Other Concessional Deductions: Issues of Principle  166 
III. Concessional Deductions for Education and Medical Expenses  169 
Education Expenses  170 
Medical Expenses  170 
Payments to Medical and Hospital Benefits Funds and Medical Expenses Generally  172 
Expenses of Blind Persons or Persons Confined to Bed or Invalid Chair  174 
Funeral Expenses  174 
IV. Zone Allowances  174 
Zone Boundaries  175 
Deduction or Rebate  175 
The Amount of the Concession  176 
Qualifying Period  176 

  ― v ―
I. Social Security Payments and the Tax System  177 
II. Social Security Contributions  180 
I. Complexity of Rate Scale  183 
II. Surcharge on Property Income  185 
III. Shape of Rate Scale  188 
Low Range  188 
High Range  190 
Intermediate Range  192 
IV. Frequency of Adjustment  193 
Purpose of Adjustment  194 
Statutory or Discretionary  194 
Adjustment Procedure  196 
V. Income Averaging  197 
The Existing Law  197 
Primary producer averaging  197 
Drought bond scheme  198 
Anti-bunching measures  198 
Alternatives to the Existing Law  199 
Averaging  199 
Cumulative averaging  200 
Block averaging  200 
Marginal adjustment scheme  200 
United States System  201 
Income Equalisation Scheme  204 
Anti-bunching Measures  205 
Appendix A: Tax payable under Alternative Systems: 1974–75 Rates  206 
I. Trusts  207 
Present Entitlement  208 
Present Entitlement of a Beneficiary under a Disability  210 
Net Income of the Trust Estate and Trust Income  211 
Accumulating Income  213 
Losses of Previous Years  215 
II. Partnerships  216 
Net Income of a Partnership and Partnership Profits  216 
Treatment of Losses  217 
Payment by Surviving Partners to Retired Partner or to Estate of Deceased Partner  218 
III. International Aspects  218 
Trusts  218 
Partnerships  220 
I. Present System of Company Income Taxation  225 
Criticism of the Present System  225 
II. Unacceptable Alternatives to the Present System  228 
Tax the Allocation of Profits  228 
Tax Actual Distributions and Accruals in Value of Shares  228 

  ― vi ―
Require Distribution of All Profits and Tax these Distributions 
Tax the Company and Exempt Dividends from Personal Income Tax  229 
III. Split-rate and Imputation Systems  229 
The Choice of an Imputation System  231 
IV. Proposed Imputation System  233 
Amount of Imputation  234 
Minimum Distributions by Companies  234 
International Implications of Proposed Imputation System  235 
Investment by Non-residents  236 
Investment by Australian Resident in Foreign Countries  237 
V. Imputation and Forward Shifting  238 
VI. Proposal to Allow Election to be Taxed as a Partnership  239 
Eligibility to Elect  239 
Amount and Nature of Company Profits  239 
Number and Nature of Shareholders  240 
Capital Structure of the Company  240 
Manner and Timing of Election and Manner of Termination of Election  240 
Consequences of Election and Termination of Election  241 
VII. Appropriateness of Special Provisions for Small Enterprises  241 
VIII. Aspects of Present Company Taxation  242 
Minimum Distribution Requirements  242 
Income of Private Investment Companies  245 
Assessment of Company Groups  246 
The Treatment of Company Groups in Other Countries  246 
United States  246 
New Zealand  247 
Canada  247 
United Kingdom  247 
The Choice of Method of Relief  247 
Holding and Subsidiary Companies  248 
Trading and Consortium Companies  248 
Restrictions on Carry-forward of Company Losses  249 
Loan Capital and Share Capital  250 
Convertible Notes  251 
High Gearing  251 
I. The Taxation of Foreign-source Income of Australian Residents  254 
Concept of Resident of Australia  254 
Foreign-source Income not Subject to Australian Tax  256 
Credit for Foreign Tax on Foreign-source Income subject to Australian Tax  256 
Exemption and Credit as Methods of Giving Relief Against Double Taxation  257 
Equity  257 
Efficiency  258 
Simplicity  259 

  ― vii ―
Committee's Proposals 
II. Australian-origin Income of Non-residents  262 
Justification for Taxing Income of Non-residents on the Basis of Origin in Australia  263 
Taxation on the Basis of Source in Australia  264 
Tax on Australian-origin Income by Withholding  265 
Tests of Foreign Origin of Income  266 
Reconstruction of Australian-source Income of Non-residents  266 
Reconstruction of Income of Australian Residents from Transactions with Non-residents  268 
Taxation of Branch Operations in Australia  269 
III. Double Taxation Agreements  270 
Appendix A: Rules for Determining Source of Income of Non-residents  273 
Income from Sale of Goods Imported into Australia  273 
Income from Purchase and Sale of Goods that are at all times in Australia  273 
Income from Purchase of Goods in Australia and their Sale Abroad  273 
Income from Manufacturing Operations in Australia  274 
Income from Sale of Australian Real Property  274 
Income from Sale of Shares  274 
Income from Services Performed as an Employee  275 
Income from Services Performed Otherwise than as an Employee  275 
Income in the Form of Rentals in respect of Real Property  276 
Income in the Form of Rents of Chattels  276 
Income in the Form of Payments for the use of Commercial or Industrial Property  277 
Income Arising from Payments for Commercial or Industrial Property  277 
Income Arising from Payments for Scientific, Technical, Industrial or Commercial Knowledge or Information  277 
Income in the Form of Dividends  278 
Income in the Form of Interest  278 
The Definition Provisions  282 
Valuation of Livestock  282 
Spreading and Averaging Provisions  284 
Capital Expenditure and Depreciation  285 
Losses of Previous Years  286 
Restriction of Benefit of Primary Production Provisions  286 
I. General Mining  289 
Conduct of Mining Operations  290 
Determination of Net Income from Mining  292 
Provisions of the Act  293 
Exploration and Prospecting Expenditure  293 

  ― viii ―
Development of a Mine and Mining Infrastructure 
Processing and Treatment of Minerals  296 
Overseas Exploration and Prospecting  297 
Anti-pollution and Ecological Expenditure  297 
Depletion Allowance  299 
Purchase of Mining or Prospecting Right or Information  300 
Proceeds of Sale of Mining Right or Information  302 
Section 23(o)  302 
II. Recent Amendments to the Act  303 
Exploration Expenditure by General Mining Companies  304 
Allowable Capital Expenditure: Costs of Company Formation and Capital Raising  305 
Immediate Write-off Provisions  305 
Housing and Welfare Expenditure  307 
Transportation Expenditure: Division 10AAA  308 
III. Petroleum Mining  308 
Overseas Exploration and Prospecting  309 
Exploration and Prospecting Expenditure  309 
Development Expenditure  311 
Depreciation Allowances  312 
Acquisition of Prospecting Information or Mining Right  312 
IV. Quarrying  312 
Nature of Quarrying Industry  313 
Expenditure Incurred in Quarrying  313 
Quarrying Plant Depreciation  314 
Exploration Expenditure  314 
Development Expenditure  315 
Anti-pollution and Ecological Expenditure  316 
Acquisition Costs and Proceeds of Sale of Quarry  316 
Appendix A: Mining Taxation: A Comparative Survey  319 
I. Exploration Costs  319 
Australia  319 
General Mining  319 
Petroleum  320 
Transfer to Purchaser of Benefit of Deduction  320 
United Kingdom  321 
Canada  322 
‘Principal Business Corporations’  322 
Taxpayers other than ‘Principal Business Corporations’  322 
United States  323 
South Africa  323 
New Zealand  324 
Mining Companies  324 
Loss Carry-forward  324 
Appropriations  324 
Mining Operators  325 
Non-resident Mining Operators  325 
II. Capital Expenditure on Plant and Development  325 
Australia  325 
General Mining  325 
Railways, Roads, Pipelines  326 

  ― ix ―
Sale of Prospecting or Mining Rights or Information  328 
Disposal of Mining and Petroleum Mining Assets  328 
United Kingdom  328 
Canada  330 
Depletion Allowances  330 
Additional Allowances  331 
Capital Cost Allowances  331 
United States  332 
Depletion Allowances  332 
Percentage Depletion  332 
Development Expenditure  333 
South Africa  333 
Computation of Deduction  333 
Closing Down of Mine  334 
Change of Ownership  334 
New Zealand  334 
III. Investment Incentives  335 
Australia  335 
Deductibility of Capital Subscription  335 
Exempt Income  336 
Losses Incurred in Gaining Exempt Income  336 
United States  337 
Canada  337 
New Zealand  337 
South Africa  338 
I. General Insurance  339 
Determination of Earned Premiums  339 
Claims Incurred but not Reported  340 
Catastrophe Fund  341 
Reinsurance with Non-residents  341 
II. Exempt Organisations and Mutual Associations  342 
Local Governing Bodies, Public Authorities and Institutions of a Charitable Kind  342 
Non-profit Associations and Societies Formed for Particular Purposes  342 
Co-operative Companies  344 
Friendly Society Dispensaries  346 
I. The Case for Special Treatment  349 
II. Superannuation, Retiring Allowances and Related Matters  350 
Background and Present Legislation  350 
Taxation of Lump Sum Payments on Retirement  351 
Deductibility of Retiring Allowances Paid by Employers  353 
Deductibility of Contributions to Superannuation Funds  354 
Taxation of Income of Superannuation Funds  355 

  ― x ―
Taxation of Benefits Received from Superannuation Funds 
International Comparisons: A Brief Summary  360 
Proposals  361 
The First View  361 
The ultimate position  362 
Transitional provisions: lump-sum retirement benefits  365 
The income of superannuation funds  367 
Contributions to approved superannuation funds  369 
Provision for self-employed persons  369 
Transitional provisions for superannuation funds  370 
The 30/20 requirements  370 
The Second View  370 
The amount of tax-assisted saving  372 
Contributions to the fund  372 
Approved funds  372 
The taxing of receipts from an approved fund  372 
The phasing out of funds approved under the old law  373 
Comparison of the Two Views  373 
III. Life Insurance  375 
Background and Present Legislation  375 
Deductibility of Premiums  375 
Taxation of Life Insurance Companies  376 
The 30/20 Requirements  377 
Taxation of Policy Proceeds  377 
International Comparisons: A Brief Summary  378 
Conclusion  379 
I. Legislature, Appeals and Prosecutions  381 
The Commissioner's Discretion  381 
Amendment of an Assessment  383 
Objections to an Assessment  384 
Powers and Procedures of a Board of Review  385 
Appellate Powers and Procedures  388 
Costs of Objections, Reviews and Appeals  390 
Interest Upon Pre-paid Tax Liabilities  391 
Taxation Prosecution Procedures and Penalties  392 
Hardship Relief  394 
Public Interest in Taxation Legislation  396 
Independent Standing Committee  396 
II. Procedures and Compliance  397 
Adjustment Sheets  397 
Supply of Information  397 
Return Forms  397 
Information Bulletins  397 
Advance Rulings  398 
Non-taxable ‘Assessments’  398 
Taxpayer Compliance  399 
Registered Tax Agents  400 
III. Payment of Tax  401 
Tax Instalment Deduction System  401 
Excess Instalment Deductions  401 

  ― xi ―
Limited Effectiveness 
Other Aspects  404 
Provisional Tax System  405 
Company Tax System  409 
Withholding Tax  411 
I. The General Issue  414 
II. The Method of Taxing  416 
III. Specific Issues  419 
Transitional Provisions  419 
Bunching and Spreading  420 
Determination of Amount of Gain  421 
Treatment of Companies  422 
Treatment of Trusts  423 
Treatment of Gifts  424 
Treatment of Unrealised Gains at Death  425 
Exemption on Retirement, Death or Disablement  425 
Treatment of Taxpayer's Principal Residence  426 
Exemption of Small Gains  427 
Exemption of Certain Assets  427 
Life Assurance Policies  428 
Superannuation Rights  428 
Depreciable Assets  428 
Intangible Assets  428 
Roll-over for Certain Assets  428 
Treatment of Losses  429 
IV. The Distinction Between Capital and Income  430 
Section 26(a)  430 
Section 26AAA  431 
Replacement of Sections 26(a) and 26 AAA upon their Repeal  431 
V. Development Gains Tax  432 
VI. Conclusion  433 
Reservation by R. W. Parsons  435 
Reservation by K. Wood  438 
I. The Form of a Death Tax  441 
II. Proposed Reforms  442 
The Tax Base  442 
Integration of Gift Duty with Estate Duty  443 
Deductions in Determining the Estate Duty Base  444 
Rate Structure  444 
Concessions for Dependants  445 
Other Concessions  447 
Adjustments for Inflation  447 
Advance Provision for Payment of Tax  448 
Quick-succession Relief  448 
Fall in Value of Assets after Death  450 
Valuation of Assets  451 
Jurisdiction of Integrated Estate and Gift Duty  451 
Incidence of Integrated Estate and Gift Duty  452 

  ― xii ―
Assessment Procedures 
A National Estate and Gift Duty  453 
Appendix A: The Base of an Integrated Estate and Gift Duty  455 
I. Powers Over Property  445 
II. Options  457 
III. Settled Property  459 
Life Estates  460 
Estates for a Term of Years or for the Life of Another Person  462 
Discretionary Trusts  462 
Accumulating Income  463 
Special Cases  464 
IV. Annuities  465 
V. Gift of Services  466 
VI. Use of Property  467 
VII. Debts  468 
VIII. Partnerships  468 
IX. Companies  469 
Transfer of Assets to a Company  469 
Power or Control in Relation to Companies  469 
Benefits from a Company  470 
Gifts in Transactions Involving Companies  470 
Gift to a company  471 
Gift by a company  471 
Allotment of shares  472 
Variation in share rights  472 
Change in share rights without concurrent company action  472 
An obligation to sell shares to specified persons at a price specially determined  473 
Declaration of dividends  473 
Definition of a ‘Family’ or ‘Closely Controlled’ Company  474 
X. Involuntary Gifts  474 
XI. Insurance and Superannuation  475 
XII. Joint Ownership  475 
XIII. Exempt Transactions  475 
XIV. Interrelation of Income Tax and Gift Tax  476 
Appendix B: Rate Structure  479 
I. Present Duties and Grossing-up  479 
II. Illustration of a Scale of Integrated Duty  479 
III. Adjusting the Rate Scale  480 
IV. Quick-succession Relief  481 
Appendix C: Situs of Assets  483 
Reservation by R. W. Parsons  485 
Reservation by K. Wood  487 
25. CHARITIES  489 
I. Deductibility from Income of Gifts to Charities  489 
II. Income of Charities  490 
III. Charities in Relation to Gift and Estate Duties  491 
IV. Issues of Principle  492 
Subsidy by Deduction  492 
Subsidy by Exemption of Income  493 
V. Uniformity of Tax Treatment  495 

  ― xiii ―
Appendix A: Extract from Income Tax Assessment Act 
Appendix B: Extract from Estate Duty Assessment Act  501 
Appendix C: Tax Treatment of Charities  503 
26. WEALTH TAX  505 
I. Overseas Experience  505 
II. Appraisal  506 
III. Conclusion  510 
I. Existing Taxes on Goods and Services  511 
II. Broad-based Taxes  515 
Turnover Tax  516 
Wholesale Sales Tax  517 
Retail Sales Tax  517 
Value-added Tax  518 
III. Level of VAT and Transitional Problems  520 
Appendix A: Sales Tax as a Continuing Tax  523 
I. Tax Base and Rates of Tax  523 
II. Structure and Administration of the Law  523 
Simplification of the Law  523 
Time for Lodgment of Returns  524 
Objections and Appeals  524 
Freight Charges  526 
Avoidance of Tax  526 
28. CONCLUSION  529 
Advertisement of Terms of Reference and Invitation to Submit  533 
List of Authors of Submissions  535 
List of Commissioned Studies  547 
Treasury Taxation Papers  549 
Members of the Professional Staff who assisted the Committee for varying periods  551 
Professional Firms, Universities and Organisations who made Professional Staff Available to the Committee  551 
Members of the General Services Staff  551 
Important Statutory Alterations to the Taxation Legislation since the Taxation Review Committee commenced its work  553 
Index  559 

  ― xv ―



  ― xvi ―
Table  Particulars  Page 
2.A  Tax revenue: selected years since 1901–02 
2.B  Taxation and its uses: all levels of government, selected years since 1949–50 
2.C  Australian government taxes: selected years since 1949–50 
2.D  Numbers of taxpayers, resident and non resident, assessed for income tax: selected income years since 1944–45 
2.E  International tax comparisons: OECD countries, 1965 and 1971 
4.A  Income tax: individuals, 1971–72 income year  25 
4.B  Taxes as a proportion of income, 1966–67  26 
4.C  Distribution of taxes and transfers across range of net-of-transfer incomes, 1966–67  26 
4.D  Distribution of annual income, 1966–67 and 1968–69 surveys  27 
4.E  Average annual income of full-time male workers, by educational attainment and age group, 1968–69 pilot survey  28 
6.A  Effect of rising money incomes and an unaltered progressive income tax schedule  43 
6.B  Personal rate schedule: marginal tax rates  49 
6.C  Effects of inflation on ‘real’ income rate schedule  50 
6D  Tax on average earnings per employed male unit  52 
6.E  Percentage of individual taxpayers with net income in excess of $3,000,$6,000 and $10,000  52 
6.F  Deduction for dependants, 1973–74: effect of failure to adjust fully for inflation  53 
6.G  Value of dependant allowances, 1955–56 to 1973–74, as percentage of inflation-hedged 1954–55 allowances  54 
6.H  Average rate of federal estate duty, 1954–55 and 1973–74  55 
6.I  Effect of imposing 30 per cent capital gains tax when capital appreciates at same rate as inflation  57 
8.A  Long-service leave entitlement  87 
10.A  Taxes paid by equal-income families: existing system  135 
12.A  Deductions allowed by range of net income: 1971–72  163 
14.A  Marginal tax rates: selected countries, 1974  184 
14.B  Proportion of taxpayers, proportion of taxable income, mean taxable income, average tax rate and proportion of income tax receipts, by income range, 1971–72  187 
14.C  Average and marginal tax rates, 1973–74 and 1974–75: selected incomes  192 
14.D  Taxable income and tax payable: unchanged rate schedule  197 
14.E  Illustration of primary producer averaging  198 
14.F  Illustration of marginal adjustment scheme  201 
14. Appendix A  Tax payable under alternative systems: 1974–75 rates  206 
16.A  Number of resident company returns lodged and company tax paid  223 
16.B  Combined rate of company and personal income tax under present ‘separate’ system, by size of shareholder's income and proportion of profits retained  226 

  ― xvi ―
Combined rate of company and personal income tax under full imputation (A) and present ‘separate’ system (B), by size of shareholder's income and proportion of profits retained  230 
16.D  Mechanics of partial imputation system with dividend tax credit of one-quarter of the dividend received: company tax rate 50 per cent and 50 per cent distribution of after-tax profits  235 
16.E  Mechanics of partial imputation system with dividend tax credit of one-third of the dividend received: company tax rate 50 per cent and 50 per cent distribution of after-tax profits  236 
23.A  Inflation and capital gains: period of holding  417 
23.B  Spreading of capital gains  421 
23.C  Non-spreading of capital gains  421 
24.A  Death and gift duties: revenue statistics  439 
24.B  Commonwealth estate duty: assessments issued by size of estate, 1972–73  439 
27.A  Taxes on goods and services, by categories of expenditure and estimated split between excise duty and sales tax, 1970–71  512 
27.B  Estimated personal expenditure on services at retail level, 1970–71  516 
27.C  Value-added taxes in Europe  519 

  ― xvii ―


On 11 April 1972 the then Treasurer (the Right Honourable B. M. Snedden, Q.C.) announced that the Government had decided to institute a full-scale public inquiry by a Committee to be appointed into the operation of the taxation system which would put the Government in a position to have an overall look at tax policy.

On 18 May 1972 the then Treasurer announced that the Government had drawn up the following terms of reference for the inquiry:

  • ‘1. The functions of the Committee of Inquiry are—
    • (a) to examine and inquire into the structure and operation of the present Commonwealth taxation system;
    • (b) to formulate proposals for improving the Commonwealth taxation system, either by way of making changes in the present system, abolishing any existing form of taxation or introducing new forms of taxation; and
    • (c) to report to the Treasurer of the Commonwealth accordingly.
  • 2. The Committee of Inquiry shall, in carrying out its functions, do so in the light of the need to ensure a flow of revenue sufficient to meet the revenue requirements of the Commonwealth and have regard to—
    • (a) the effects of the present Commonwealth taxation system, and of any proposals formulated by the Committee, upon the social, economic and business organisation of the community and upon the economic and efficient use of the resources of Australia; and
    • (b) the desirability of the Commonwealth taxation system being such that, so far as is practicable, there is a fair distribution of the burden of taxation, and revenue is raised by means that are not unduly complex and do not involve the public or the administration in undue difficulty, inconvenience or expense.
  • 3. For the purposes of these terms of reference, the present Commonwealth taxation system shall be taken to be the system under which the Commonwealth raises revenue by means of the following forms of taxation:—

Income Tax

Sales Tax

Estate Duty

Gift Duty

Duties of Excise imposed for the purpose of raising general revenue, and duties of Customs that correspond with duties of Excise so imposed.’

On 14 August 1972 the Honourable Mr Justice K. W. Asprey, a Judge of Appeal of the Supreme Court of New South Wales, was appointed as Chairman of the Committee and subsequently on 10 September 1972 the following persons were appointed as members of the Committee:

Mr D. M. Bensusan-Butt, M.A.

Sir Peter Lloyd, M.A.

Professor R. W. Parsons, B.A., LL.B.

Mr Kenneth Wood, F.C.A.

and Mr M. C. Kahl, A.A.S.A., was appointed as Secretary of the Committee.

The first meeting of the Committee was held on 14 September 1972. Possession of the premises of the Committee at 107 Pitt Sreet, Sydney, was taken on 23 October 1972.

Because of the pressure of other commitments Mr Bensusan-Butt resigned from the Committee shortly after the completion of the preliminary report on 1 June 1974. Mr Bensusan-Butt made a reservation to the then Chapter 9 of the preliminary report dealing with capital gains. In view of the change in the form of that chapter (now

  ― xviii ―
Chapter 23), this reservation has not been repeated in this report. The Committee desires to acknowledge its indebtedness to Mr Bensusan-Butt for the part played by him in the preparation of the preliminary report.

The Committee advertised widely throughout Australia calling for written submissions to be made to it. The form of the advertisement appears on page 533.

Advertisements were inserted in the press and journals with an extensive coverage in October and November 1972 and in February 1973. The Committee also wrote to a great many individuals, companies and representative bodies and organisations specifically inviting them to make submissions to the Committee.

Originally the Committee asked for submissions to be forwarded by 31 March 1973 but this date was subsequently extended and during the period for forwarding submissions the Committee on several occasions obtained press coverage publicising the closing date for submissions.

The Committee, in answer to inquiries, made known that it was prepared to confer with any person or body desirous of making a submission with a view to rendering assistance as to the format of a submission and a number of persons and bodies were interviewed by the Committee for this purpose.

The Committee received in all 605 written submissions and had the opportunity of conference and discussion with certain authors of submissions. Many of these are very substantial documents showing that much time and expense were devoted to their preparation. A list of those persons, organisations and companies who made submissions to the Committee appears on p.535. The Committee also received a number of submissions on a confidential basis.

The Committee desires to thank all those who have made submissions to it and those who have also given of their time to confer with the Committee in person.

In addition to seeking written submissions, the Committee has commissioned studies by experts in special fields where it was considered that their views would be of great assistance to the Committee. Other studies have been prepared for the use of the Committee in its deliberations and reference to these is made in various places in the report. The Committee desires to thank all those who have assisted it in this fashion. A list of studies which their authors agree may be publishednote appears at p.547 of this report. It must be clearly understood that these studies are not a part of the Committee's report and the Committee takes no responsibility for their contents which represent the personal views of their authors.

The Committee has received from the Treasury and the Taxation Office a series of well-balanced and informative background studies prepared by senior officers on a wide variety of subjects. Though these studies did not, of course, make recommendations to the Committee, they have been of considerable assistance in its deliberations. Thirteen of these studies have been published by the Government for public information and a list of these appears on p.549 of this report.

The Committee desires to record its thanks and appreciation to the Secretary of the Treasury (Sir Frederick Wheeler, C.B.E.), the Commissioner of Taxation (Sir Edward Cain, C.B.E.) and their officers for their ready assistance at all times in supplying information to the Committee concerning the administration and operation of the taxation legislation. The Committee also wishes to express its appreciation of the continuous help and co-operation afforded to it by the Second Commissioner (Mr W. J. O'Reilly, O.B.E.) who acted throughout as a liaison between the Committee and the Treasury and the Taxation Office.

  ― xix ―

Apart from its investigation of the relevant taxation statutes of the Australian Parliament and the Parliaments of the several States, the Committee has also given consideration to the appropriate taxation systems of the United Kingdom, Canada, New Zealand, South Africa, the United States, and a number of the countries of Europe and South America. It has obtained information as to operation of these systems by various means and desires to thank all those who have supplied this material. Lastly the Committee has had the benefit of reports, articles and commentaries on practically every aspect of taxation from other commissions of inquiry, taxation experts in Australia, and in the other countries mentioned above.

The professional staff of the Committee has included lawyers, accountants and economists. Throughout the life of the Committee its numbers have fluctuated but a complete list of the persons who have served as members of the professional staff is appended at p.551 The Committee is keenly appreciative of the work performed for it by its professional staff and desires to thank them for the indispensable services and assistance given by its members to the Committee.

The Committee also desires to thank those professional firms, universities and other organisations which at inconvenience to themselves so readily made available to the Committee the persons who constituted its professional staff. A list of the professional firms, universities and organisations which greatly aided the Committee in this connection appears on p.551.

The Committee also acknowledges the assistance which it has received from its general services staff who at all times worked so well in the duties undertaken by its members. A list of these appears on p.551.

The Chairman also wishes to thank his Associate (Mrs Jean Johnson) and his Tipstaff (Mr D. R. Parker) for their cheerful and constant help to him during holiday periods in addition to the usual working weeks.

The Committee wishes to acknowledge a special debt of gratitude to its Secretary, Mr M. C. Kahl, A.A.S.A., upon whom a great burden of the work of this Committee has fallen from the commencement to its conclusion. Without the whole-hearted devotion and efficiency at all times of Mr Kahl, the Committee would not have been able to complete its work by this date.

A similar acknowledgement of the indebtedness of the Committee must be made in respect of the invaluable work performed by its Chief Economist, Mr A. H. Boxer, B.A., B.Phil., upon whom a great burden of the work has also fallen. At all times Mr Boxer carried out his work for the Committee without regard to hours or to his own personal convenience.

Following upon the change of Government resulting from the Federal election on 2 December 1972, the present Government in office confirmed the continuation of the Committee's work. The Committee agreed in February 1974 after some earlier discussion to a request by the then Treasurer (the Honourable Frank Crean) to make a preliminary report so as to place before the Government by 1 June 1974 the Committee's views as at that date of some of the broad alternatives in relation to tax reform, having regard to the presentation of the Budget for 1974-75. Accordingly, the preliminary report was submitted on the understanding that it would be treated on the same confidential basis as any other document prepared in conjunction with the framing of the Budget.

The committee then emphasised that this was a preliminary report only and that many of the opinions in it were at that stage necessarily either provisional or expressed only in a broad-brush way to be filled out in greater detail in the full report. This was also apparent from the manner in which a number of the Committee's views were expressed.

  ― xx ―

The Committee had concluded its deliberations more particularly upon Chapter 23 of this report (Capital Gains Tax) and had arrived at its decision to recommend deferral of this tax prior to the announcement made on 29 January 1975 that the Government's plans for the introduction of a capital gains tax had been postponed. No attempt has been made in the discussions and recommendations of this report to take account of this change in the Government's policy.

Where there is not unanimous agreement upon the recommendations contained in any chapter of this report, a reservation by a member or members appears at the end of that chapter.

It must be clearly understood that this report supersedes the preliminary report, although it contains a large proportion of the material which appeared in the preliminary report.

In conclusion, the Committee would like to make it clear that, in undertaking a task of such magnitude, set by its terms of reference, it has always had a full realisation that it was entering upon a field in which controversy will never cease and that, upon the issues of taxation and economic policies which are inextricably interwoven in all questions of the reform of a taxation structure in any country, opinions as to the true and best path to follow will invariably differ. The history of every committee of inquiry into a taxation system is proof enough of that fact. Accordingly, this Committee expresses the hope that, out of the discussions which appear and the recommendations which are contained in this report and from the disputation which will inevitably follow upon its publication, a fairer, simpler and more efficient taxation system will eventually emerge than the one which presently produces the revenue for the Australian Government.

K. W. Asprey


J. P. D. Lloyd

Ross W. Parsons Members

K. Wood

31 January 1975

no previous