[Front Matter]
― i ―
CONTENTS
Page | |
List of Tables | xv |
Preface | xvii |
1. THE NEED FOR TAX REFORM | 1 |
I. Reasons for a Review | 1 |
II. Committee's Approach | 3 |
2. THE AUSTRALIAN TAX SYSTEM IN PERSPECTIVE | 5 |
I. Historical Perspective | 5 |
II. International Perspective | 8 |
3. CRITERIA FOR TAX SYSTEMS | 11 |
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 |
4. THE POSITION OF PROGRESSIVITY | 23 |
I. The Statistical Situation | 24 |
II. Tax and Non-tax Policies in Redistribution | 29 |
III. The Distributional Objective | 32 |
5. THE GOALS OF TAX REFORM | 35 |
I. The Options | 35 |
II. Immediate and Long-term Perspectives | 37 |
6. INFLATION AND TAX REFORM | 39 |
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 |
7. INCOME TAX: THE BASE | 59 |
I. Problems of Definition | 59 |
The Concept of Income | 59 |
― ii ― Capital Gains |
60 |
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 |
8. INCOME TAX: ISSUES RELATING TO BUSINESS AND PROFESSIONAL INCOME | 79 |
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 |
100 |
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 |
9. INCOME TAX: ISSUES RELATED TO EMPLOYMENT AND INVESTMENT INCOME | 117 |
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 ― 10. PERSONAL INCOME TAX: THE TAXPAYING UNIT |
131 |
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 |
11. INCOME-SPLITTING | 143 |
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 |
12. PERSONAL INCOME TAX: DEPENDANT ALLOWANCES AND OTHER CONCESSIONAL DEDUCTIONS | 163 |
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 ― 13. PERSONAL INCOME TAX: SOCIAL SECURITY |
177 |
I. Social Security Payments and the Tax System | 177 |
II. Social Security Contributions | 180 |
14. PERSONAL INCOME TAX: RATE STRUCTURE | 183 |
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 |
15. INCOME TAXATION IN RELATION TO TRUSTS AND PARTNERSHIPS | 207 |
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 |
16. COMPANY INCOME TAX | 223 |
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 |
229 |
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 |
17. INTERNATIONAL ASPECTS OF INCOME TAXATION | 253 |
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 |
260 |
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 |
18. INCOME TAXATION IN RELATION TO PARTICULAR INDUSTRIES: PRIMARY PRODUCTION | 281 |
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 |
19. INCOME TAXATION IN RELATION TO PARTICULAR INDUSTRIES: MINING | 289 |
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 |
294 |
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 ― Petroleum |
327 |
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 |
20. INCOME TAXATION IN RELATION TO PARTICULAR INDUSTRIES: GENERAL INSURANCE, EXEMPT ORGANISATIONS AND MUTUAL ASSOCIATIONS | 339 |
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 |
21. INCOME TAXATION IN RELATION TO SUPERANNUATION AND LIFE INSURANCE | 349 |
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 |
358 |
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 |
22. INCOME TAX ADMINISTRATION | 381 |
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 |
402 |
Other Aspects | 404 |
Provisional Tax System | 405 |
Company Tax System | 409 |
Withholding Tax | 411 |
23. CAPITAL GAINS TAX | 413 |
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 |
24. ESTATE AND GIFT DUTY | 439 |
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 |
453 |
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 |
497 |
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 |
27. TAXATION OF GOODS AND SERVICES | 511 |
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 ―
LIST OF TABLES
Table | Particulars | Page |
2.A | Tax revenue: selected years since 1901–02 | 5 |
2.B | Taxation and its uses: all levels of government, selected years since 1949–50 | 6 |
2.C | Australian government taxes: selected years since 1949–50 | 7 |
2.D | Numbers of taxpayers, resident and non resident, assessed for income tax: selected income years since 1944–45 | 8 |
2.E | International tax comparisons: OECD countries, 1965 and 1971 | 9 |
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 ― 16.C |
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 |
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PREFACE
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.
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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.
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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
Chairman
J. P. D. Lloyd
Ross W. Parsons Members
K. Wood
31 January 1975