The University of Sydney-    Classic Texts in Australian and International Taxation Law

[Front Matter]

  ― i ―

CONTENTS

                                                                                                 


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	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

                                                                 


  ― xvi ―
                   

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

  ― xvii ―

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 published^note 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

Chairman

J. P. D. Lloyd

Ross W. Parsons Members

K. Wood

31 January 1975