Income Tax and Social Services Contribution Assessment Act (No. 3) 1964 (Cth)

INCOME TAX AND SOCIAL SERVICES CONTRIBUTION ASSESSMENT (No. 3).

No. 110 of 1964.

An Act relating to Income Tax.

[Assented to 23rd November, 1964.]

BE it enacted by the Queen’s Most Excellent Majesty, the Senate, and the House of Representatives of the Commonwealth of Australia, as follows:—

Short title and citation.

1.—(1.) This Act may be cited as the Income Tax and Social Services Contribution Assessment Act (No. 3) 1964.

(2.) The Income Tax and Social Services Contribution Assessment Act 1936–1963, as amended by the Income Tax and Social Services Contribution Assessment Act 1964 and the Income Tax and Social Services Contribution Assessment Act (No. 2) 1964, is in this Act referred to as the Principal Act.

(3.) Section one of the Income Tax and Social Services Contribution Assessment Act (No. 2) 1964 is amended by omitting sub-section (4.).

(4.) The Principal Act, as amended by this Act, may be cited as the Income Tax and Social Services Contribution Assessment Act 1936–1964.

Commencement.

2.—(1.) Subject to the next succeeding sub-section, this Act shall come into operation on the day on which it receives the Royal Assent.

(2.) The amendments made by paragraph (b) of section three and sections nine, nineteen, twenty, twenty-one, twenty-seven, thirty-five, thirty-six and thirty-seven of this Act shall be deemed to have come into operation on the twenty-third day of October, One thousand nine hundred and sixty-four.

Parts.

3. Section five of the Principal Act is amended—

(a) by inserting after the words—
“Subdivision A.—General (Sections 48–82).”
the words—
“Subdivision AA.—Contributions to Superannuation Funds for Benefit of Employees (Sections 82aaa-82aar).”; and
(b) by inserting after the words—
“Division 6.—Trustees (Sections 95—102).”
the words—
“Division 6a.—Alienation of Income for Short Periods (Sections 102a-102c).”.

Interpretation.

4. Section six of the Principal Act is amended—

(a)by inserting in sub-section (1.), after the definition of “allowable deduction”, the following definition:—
“‘apportionable deductions’ means—
(a) deductions allowed or allowable under sub-section (7.) of section twenty-three ab, section seventy-seven a, section seventy-seven aa, section seventy-seven b, paragraph (a) or paragraph (b)of sub-section (1.) of section seventy-eight, section seventy-nine, section seventy-nine a or section seventy-nine b of this Act or under Subdivision B of Division 3 of Part III.; and
(b)deductions allowed or allowable under section seventy-two of this Act, other than deductions allowed or allowable in respect of rates or land tax incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income;”;

(b)by inserting in sub-section (1.), after the definition of “concessional deductions”, the following definition:—
“‘constituent document’, in relation to a company, means the memorandum and articles of association of the company, or any rules or other document constituting the company or governing its activities;”;
(c) by inserting in sub-section (1.),after the definition of “primary production”, the following definition:—
“‘private company’, in relation to a year of income, means a company that is a private company in relation to that year of income for the purposes of Division 7 of Part III.;”; and
(d)by omitting from sub-section (1.) the definition of “shares” and inserting in its stead the following definition:—
“‘shares’, in relation to a company, means shares in the capital of the company, and includes stock;”.

Exemptions.

5. Section twenty-three of the Principal Act is amended—

(a) by omitting sub-paragraph (i) of paragraph (f); and
(b) by inserting after paragraph (j) the following paragraph:—
“(jaa)the income of a provident, benefit, superannuation or retirement fund established by—
(i) an Act, a State Act or an Ordinance of a Territory of the Commonwealth; or
(ii) a municipal corporation, other local governing body or public authority constituted by or under an Act, a State Act or an Ordinance of a Territory of the Commonwealth;”.

6. After section twenty-three e of the Principal Act the following section is inserted:—

Exemption of income of certain superannuation funds established for benefit of employees.

“23f.—(1.) In this section—
‘person’ includes a partnership;
‘superannuation benefits’ means individual personal benefits, pensions or retiring allowances;
‘superannuation fund’ means a provident, benefit, superannuation or retirement fund;
‘transaction’ includes a series of transactions.

“(2.) Subject to this section, this section applies to a superannuation fund, not being a fund of a kind referred to in paragraph (jaa)of section twenty-three of this Act, in relation to a year of income, if the Commissioner is satisfied that—

(a)the fund is an indefinitely continuing fund established and maintained solely for the purposes of—
(i) providing superannuation benefits for employees in the event of their retirement or in other circumstances approved by the Commissioner; and
(ii) providing superannuation benefits for dependants of employees in the event of the death of the employees;
(b)an employer of each employee who has, or whose dependants have, a right to receive benefits from the fund contributed to the fund during the year of income on behalf of that employee;
(c) the fund was not authorized by the terms and conditions applicable to the fund at any time during the year of income to accept contributions, and did not at any time during the year of income accept contributions, other than contributions on behalf of an employee who has, or whose dependants have, a right to receive benefits from the fund, being contributions made by—
(i) the employee;
(ii) an employer of the employee;
(iii) a company in which an employer of the employee has a controlling interest; or
(iv) if an employer of the employee is a company—by a person who is associated with that company;
(d)the rights of employees and dependants of employees to receive benefits from the fund are fully secured;
(e)the right of each employee and his dependants to receive benefits from the fund is defined by the terms and conditions applicable to the fund and was communicated in writing to the employee either before, or at the time when, contributions were first paid to the fund for the benefit of the employee or of his dependants or before such later date as the Commissioner allows in relation to the employee;
(f) where the right of an employee or of the dependants of an employee to receive benefits from the fund is lost or forfeited in the year of income and, at the time of the loss or forfeiture, a specified part of the amount included in the fund was appropriated for the

provision of benefits for, or for dependants of, that employee—the part of the amount so appropriated is applied in the year of income of the fund in which the right is lost or forfeited or in the period of two months, or such further period as the Commissioner allows, after the year of income for all or any of the following purposes:—
(i) the provision of the benefits that other employees or their dependants have rights to receive from the fund;
(ii) the provision for, or for the dependants of, other employees who have rights to receive benefits from the fund of additional benefits on a basis that is reasonable, having regard to all the circumstances; and
(iii) any other purposes approved by the Commissioner;
(g)where the right of an employee or of the dependants of an employee to receive benefits from the fund is lost or forfeited in the year of income and, at the time of the loss or forfeiture, a specified part of the amount included in the fund was not appropriated for the provision of benefits for, or for dependants of, that employee—any additional benefits that have been, or will or may be, provided from the fund for other employees or their dependants by reason of the loss or forfeiture have been, or will or may be, provided on a basis that is reasonable, having regard to all the circumstances;
(h)the benefits that any employee has, or the dependants of any employee have, the right to receive from the fund are not excessive in amount having regard to—
(i) the remuneration paid to the employee for services rendered by him to his employer;
(ii) the period of the service rendered by the employee to his employer;
(iii) the benefits, pensions and allowances that have been, are being or may be provided from any other fund for the employee or his dependants; and
(iv) any other matters that the Commissioner considers relevant; and
(i) the amount of the moneys included in the fund is not substantially in excess of the amount that is necessary for the purpose of providing benefits that employees and their dependants have rights to receive from the

fund having regard to the contributions that are expected to be made to the fund in succeeding years of income in relation to those employees and their dependants and to the income that is expected to be derived by the fund in succeeding years of income.

“(3.) For the purposes of sub-paragraph (iv) of paragraph (c)of the last preceding sub-section, a person is associated with a company that is an employer of an employee if—

(a) the person has a controlling interest in the employer;
(b)the person is a company in which a controlling interest is held by a person who also has a controlling interest in the employer; or
(c) the person is the beneficial owner of shares in the employer but does not have a controlling interest in the employer and is not connected with the employee.

“(4.) For the purposes of paragraph (c) of the last preceding sub-section, a person is connected with an employee if—

(a) the person is a relative of the employee;
(b)the person is a partnership and a partner in the partnership is connected with the employee; or
(c) the person is a company that is a private company in relation to the year of income and, at any time during the year of income—
(i) the employee, or a relative of the employee, was a director of the company;
(ii) shares in the company were beneficially owned by, or held indirectly on behalf of or for the benefit of, the employee or a relative of the employee;
(iii) the employee, or a relative of the employee, was a director of another company that is a private company in relation to the year of income of that other company that, in the opinion of the Commissioner, corresponded to the first-mentioned year of income and shares in the first-mentioned company were beneficially owned by, or held indirectly on behalf of or for the benefit of, the other company;
(iv) the employee, or a relative of the employee, was the beneficial owner of shares in, or was a director of, another company that is a private company in relation to the year of income of that other company that, in the

opinion of the Commissioner, corresponded to the first-mentioned year of income and shares in the other company were beneficially owned by, or held indirectly on behalf of or for the benefit of, the first-mentioned company; or
(v) the employee, or a relative of the employee, was the beneficial owner of shares in, or was a director of, another company that is a private company in relation to the year of income of that other company that, in the opinion of the Commissioner, corresponded to the first-mentioned year of income and shares in the other company were beneficially owned by, or held indirectly on behalf of or for the benefit of, a person who beneficially owned shares in the first-mentioned company or on whose behalf or for whose benefit shares in the first-mentioned company were indirectly held.

“(5.) In the application of the last preceding sub-section, shares in a company that is a private company in relation to the year of income shall be deemed to be held indirectly on behalf of or for the benefit of a person (not being a trustee or partnership), whether or not the shares are also to be deemed by virtue of this sub-section to be held indirectly on behalf of or for the benefit of another person, if, in the event of the payment of a dividend on those shares, the first-mentioned person would, otherwise than as a shareholder in the company, receive the whole or a part of that dividend if there were successive distributions of the relative parts of that dividend to and by each of any private companies, trustees or partnerships interposed between the company paying the dividend and that person.

“(6.) Where, in relation to a superannuation fund, the Commissioner is not satisfied as to a matter referred to in sub-section (2.) of this section but the trustee of the fund satisfies the Commissioner that, by reason of special circumstances that existed in relation to the fund during the year of income, it would be reasonable for this section to have effect as if the Commissioner were satisfied as to that matter, this section has effect as if the Commissioner were satisfied as to that matter.

“(7.) Subject to the next three succeeding sub-sections, the income derived during the year of income by a superannuation fund to which this section applies in relation to the year of income is exempt from income tax.

“(8.) A dividend paid to a superannuation fund by a company that is a private company in relation to the year of income of the company in which the dividend was paid is not exempt from income tax by virtue of the last preceding sub-section

unless the Commissioner is of the opinion that it would be reasonable to exempt the dividend from income tax, having regard to—

(a)the paid-up value of the shares in that company that are assets of the fund;
(b)the cost to the fund of the shares on which the dividend was paid by the company;
(c)the rate of the dividend paid to the fund by the company on the shares in the company that are assets of the fund;
(d)whether the company has paid a dividend on other shares in the company and, if so, the rate of that dividend;
(e) whether any shares have been issued by the company to the fund in satisfaction of, or of a part of, a dividend paid by the company and, if so, the circumstances of the issue of those shares; and
(f) any other matters that the Commissioner considers relevant.

“(9.) For the purposes of the last preceding sub-section, income that, in the opinion of the Commissioner, was derived by a superannuation fund indirectly from a dividend paid by a company, being a private company in relation to the year of income of the company in which the dividend was paid, shall be deemed to have been a dividend paid to the fund by the company.

“(10.) Income (other than a dividend to which sub-section (8.) of this section applies) derived by a superannuation fund from a transaction is not exempt from income tax by virtue of sub-section (7.) of this section if the Commissioner is satisfied that the parties to the transaction were not dealing with each other at arm’s length in relation to the transaction and that that income is greater than the income that might have been expected to have been derived by the fund from the transaction if those parties had been dealing with each other at arm’s length in relation to the transaction.”.

7. Section twenty-four a of the Principal Act is repealed and the following section inserted in its stead:—

Commonwealth Trading Bank of Australia.

“24a. The Commonwealth Trading Bank of Australia is not a public authority for the purposes of paragraph (d) of section twenty-three of this Act.”.

Certain items of assessable income.

8.Section twenty-six of the Principal Act is amended by omitting from paragraph (d)the words “paid or credited by a private company”.

9. After section twenty-six aa of the Principal Act the following section is inserted:—

Assessable income—premium for lease.

“26ab.—(1.) In this section, ‘premium’ means a consideration payable in one amount, or each amount of a consideration payable in more than one amount, where the consideration is—

(a)in the nature of a premium, fine or foregift payable for or in connexion with the grant or assignment of a lease; or
(b) for or in connexion with an assent to the grant or assignment of a lease,

but does not include an amount in respect of goodwill or a licence.

“(2.) Where, in the year of income, a taxpayer receives a premium that relates to the grant or assignment of a lease of property that was not, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, intended by the grantee or assignee to be used by the grantee or the assignee or some other person wholly or partly for the purpose of gaining or producing assessable income, the assessable income of the taxpayer shall include the premium.

“(3.) Where, in the year of income, a taxpayer receives a premium that relates to the grant or assignment of a lease of property that was, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, intended by the grantee or assignee to be used by the grantee or assignee or some other person partly for the purpose of gaining or producing assessable income and partly for other purposes, the assessable income of the taxpayer shall include such part of the premium as the Commissioner considers may reasonably be attributed to the intended use of the property for purposes other than gaining or producing assessable income.

“(4.) Where, in a case referred to in either of the last two preceding sub-sections, the taxpayer satisfies the Commissioner that, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, he believed on reasonable grounds that the grantee or assignee intended a particular use of the property by the grantee or assignee or some other person for the purpose of gaining or producing assessable income, the Commissioner may apply this section on the basis that that intention existed.

“(5.) This section does not apply in relation to—

(a) a premium in relation to which Division 4 of this Part applies;

(b)a premium received in connexion with the assignment of a mining lease as defined in sub-section (7.) of section eighty-eight b of this Act;
(c)a premium received in connexion with the grant or assignment of a lease that is, for the purposes of section eighty-eight b of this Act, a grant or assignment for mining purposes; or
(d)a premium received in connexion with the assignment of a lease referred to in section eighty-nine of this Act.”.

10.Section forty-six of the Principal Act is repealed and the following section inserted in its stead:—

Rebate on dividends.

“46.—(1.) In this section, ‘private company dividends’, in relation to a shareholder, being a private company in relation to the year of income, means dividends paid to the shareholder by another company, being a private company in relation to the year of income of that other company in which the dividends were paid, but does not include, where the other company is a nonresident, those dividends to the extent to which they were paid out of profits derived from sources out of Australia.

“(2.) Subject to this section, a shareholder, being a company that is a resident, is entitled to a rebate in its assessment in respect of income of the year of income of the amount obtained by applying the average rate of tax payable by the shareholder—

(a)if the shareholder is a private company in relation to the year of income, to the sum of—
(i) one-half of the part of any private company dividends that is included in its taxable income; and
(ii) the part of any other dividends that is included in its taxable income; and
(b)if the shareholder is not a private company in relation to the year of income, to the part of any dividends that is included in its taxable income.

“(3.) Subject to the succeeding provisions of this section, the Commissioner may allow a shareholder, being a company that is a private company in relation to the year of income and is a resident, a further rebate in its assessment of the amount obtained by applying the average rate of tax payable by the shareholder to one-half of the part of any private company dividends that is included in its taxable income if the Commissioner is satisfied that—

(a)the shareholder has not paid, and will not pay, a dividend during the period commencing at the beginning of the year of income of the shareholder and ending at the expiration of ten months after that year of income to another private company;

(b) where the shareholder has paid, or may pay, a dividend during the period—
(i) commencing at the beginning of the year of income of the shareholder; and
(ii) ending at the expiration of ten months after that year of income,
to a company, being a private company in relation to the year of income of the company in which the dividend was, or may be, paid, the company has not paid, and will not pay, a dividend during the period—
(iii) commencing at the beginning of the year of income of the company in which the dividend has been, or may be, paid by the shareholder; and
(iv) ending at the expiration of ten months after that year of income,
to another private company; or
(c) having regard to all the circumstances, it would be reasonable to allow the further rebate.

“(4.) Where, after the Commissioner has allowed a shareholder, being a company that is a private company in relation to a year of income and is a resident, a further rebate in its assessment in pursuance of the last preceding sub-section, the Commissioner becomes satisfied that, having regard to all the circumstances, the rebate ought not to have been allowed, the shareholder shall be deemed not to have been entitled to the rebate.

“(5.) Notwithstanding anything in any other provision of this Act, the Commissioner may amend an assessment for the purpose of giving effect to either of the last two preceding sub-sections if the amendment is made within three years after the date upon which the tax became due and payable under the assessment, but nothing in this sub-section limits the power of the Commissioner to amend an assessment in accordance with any other provision of this Act.

“(6.) For the purposes of sub-section (2.) and sub-section (3.) of this section, the average rate of tax payable by a shareholder for a year of tax shall be deemed to be an amount per pound being the amount ascertained by dividing the amount of income tax that would be assessed in respect of the taxable income derived by the shareholder in the year of income if—

(a)the shareholder was not entitled to any rebate of tax or credit against its liability to tax; and
(b)the shareholder was not liable to pay any tax under Division 7 of this Part,

by a number equal to the number of whole pounds in that taxable income.

“(7.) For the purposes of sub-section (2.) and sub-section (3.) of this section—

(a)the part of any dividends that is included in the taxable income of a shareholder is the amount remaining after deducting from the amount of the dividends included in the assessable income of the shareholder the deductions allowable to the shareholder under this Act from income from dividends; and
(b)the part of any private company dividends that is included in the taxable income of a shareholder, being a company that is a private company in relation to the year of income, is the amount remaining after deducting from the amount of the private company dividends included in the assessable income of the shareholder—
(i) any deductions allowable to the shareholder under this Act from income from dividends, being deductions that relate directly to the private company dividends; and
(ii) so much of any other deductions allowable to the shareholder under this Act from income from dividends as, in the opinion of the Commissioner, may appropriately be related to the private company dividends.

“(8.) A shareholder in a company that is a co-operative company within the meaning of Division 9 of this Part is not entitled to a rebate in its assessment in respect of dividends paid to it by that company.

“(9.) This section has effect subject to section one hundred and sixteen a of this Act.”.

Notional income where assessable income includes consideration receivable on disposal, loss or destruction of depreciated property.

11. Section fifty-nine ab of the Principal Act is amended by inserting in sub-section (1.), after the words “does not apply”, the words “in relation to an assessment of the taxpayer in accordance with section ninety-nine a of this Act or”.

Payments to associated persons and relatives.

12.Section sixty-five of the Principal Act is amended by omitting sub-section (1.) and inserting in its stead the following sub-sections:—

“(1.) Subject to this section, the amount, or a part of the amount, of any payment made or liability incurred in the year of income by a taxpayer to an associated person that would, but for this sub-section, be an allowable deduction is allowable as a deduction only to the extent to which, in the opinion of the Commissioner, it is reasonable.

“(1a.) Subject to the next succeeding sub-section, where, by virtue of the last preceding sub-section, any amount is not an allowable deduction, that amount shall, for the purposes of this Act, be deemed not to be income of the associated person.

“(1b.) Where, by virtue of sub-section (1.) of this section, an amount is not allowable as a deduction in calculating in accordance with section ninety of this Act the net income, or a partnership loss, of a partnership in which a company, being a private company in relation to the year of income of the company to which the individual interest of the company in the net income of the partnership or in the partnership loss relates, is a partner—

(a) the company shall, for the purposes of this Act other than Division 11a of this Part and Division 4 of Part VI., be deemed to have paid, on the last day of that year of income, a dividend of an amount ascertained in accordance with the next succeeding sub-section; and
(b)the last preceding sub-section does not apply in relation to so much of the amount that is not so allowable as a deduction as is equal to the amount of the dividend that the company is to be so deemed to have paid.

“(1c.) For the purposes of the last preceding sub-section, the amount of the dividend that the company is to be deemed to have paid is—

(a)where the effect of the disallowance of the deduction has been to increase the net income of the partnership—an amount equal to the difference between the amount of the individual interest of the company in the net income of the partnership and the amount that would have been the individual interest of the company in the net income of the partnership if the deduction had been allowed;
(b)where the effect of the disallowance of the deduction has been to reduce the partnership loss—an amount equal to the difference between the amount of the individual interest of the company in the partnership loss and the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed;
(c) where there is net income of the partnership and the amount of the deduction that was disallowed is equal to that net income—an amount equal to the individual interest of the company in the net income of the partnership;

(d)where there is net income of the partnership and, but for the disallowance of the deduction, there would have been a partnership loss—an amount equal to the sum of the amount of the individual interest of the company in the net income of the partnership and the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed; and
(e)where there is no net income of the partnership and, but for the disallowance of the deduction, there would have been a partnership loss—an amount equal to the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed.

“(1d.) A reference in sub-section (1.) or sub-section (1a.) of this section to an associated person shall be read as a reference—

(a) in the application of this section to a taxpayer, to—
(i) a relative of the taxpayer; or
(ii) a partnership a partner in which is a relative of the taxpayer; and
(b)in the application of this section to a partnership for the purpose of calculating in accordance with section ninety of this Act the net income of the partnership or a partnership loss, to—
(i) a relative (not being a partner in the partnership) of a partner in the partnership;
(ii) another partnership a partner in which is a relative of a partner in the first-mentioned partnership;
(iii) a person (not being a partner in the partnership) who is or has been, or is a relative of a person who is or has been, a shareholder in, or a director of, a company, being a private company in relation to the year of income, that is a partner in the partnership; or
(iv) a person (not being a partner in the partnership) who is, or is a relative of, a beneficiary in a trust estate the trustee of which is, in his capacity as trustee of the trust estate, a partner in the partnership.

“(1e.) Nothing in any other provision of this Act prevents the amendment of an assessment at any time for the purpose of giving effect to the provisions of sub-section (1a.) of this section.

“(1f.) Where there is allowed as a deduction an amount that, in pursuance of sub-section (1.) of this section, was not previously allowed as a deduction, nothing in any other provision of this Act prevents the amendment of any assessment at any time to give effect to the inclusion in the income of a taxpayer of an amount that, in pursuance of sub-section (1a.) of this section, was treated, by virtue of the disallowance of the deduction, as not being so included for the purposes of the assessment.”.

Contribution to fund for benefit of employees of taxpayer.

13. Section sixty-six of the Principal Act is repealed.

14.Section seventy-nine of the Principal Act is repealed and the following section inserted in its stead:—

Five per centum of cost of assets of superannuation fund established for benefit of employees and other persons to be allowable deduction.

“79.—(1.) In this section—

‘asset’ does not include a policy as defined by sub-section (1.) of section four of the Life Insurance Act 1945–1961;
‘superannuation benefits’ means individual personal benefits, pensions or retiring allowances;
‘superannuation fund’ means a provident, benefit, superannuation or retirement fund, not being—
(a) a fund of a kind referred to in paragraph (jaa)of section twenty-three of this Act;
(b) a fund the income of which is, or, but for Division 9b of this Part, would be, exempt from income tax by virtue of paragraph (ja)of section twenty-three of this Act, irrespective of whether that income would be so exempt by virtue of any other paragraph of that section; or
(c) a fund to which section twenty-three f of this Act applies in relation to the year of income.

“(2.) This section applies, in relation to a year of income, to a superannuation fund if the Commissioner is satisfied at—

(a)the fund is an indefinitely continuing fund established and maintained solely for the purposes of—
(i) providing superannuation benefits for each of the members of the fund in the event of the retirement of the member from a business, trade, profession, vocation, calling or occupation in which he is engaged; and
(ii) providing superannuation benefits for dependants of each of the members of the fund in the event of the death of the member, or for those purposes and such incidental and ancillary purposes as the Commissioner approves;
(b)the rights of members of the fund and dependants of members to receive benefits from the fund are fully secured;
(c) the right of each member of the fund and his dependants to receive benefits from the fund is defined by the terms and conditions applicable to the fund and was communicated in writing to the member either before,

or at the time when, contributions were first paid to the fund for the benefit of the member or of his dependants or before such later date as the Commissioner allows in relation to the member;
(d)where the right of a member of the fund or of the dependants of a member to receive benefits from the fund is lost or forfeited in the year of income and, at the time of the loss or forfeiture, a specified part of the amount included in the fund was appropriated for the provision of benefits for, or for dependants of, that member—the part of the amount so appropriated is applied in the year of income of the fund in which the right is lost or forfeited or in the period of two months, or such further period as the Commissioner allows, after the year of income for all or any of the following purposes:—
(i) the provision of the benefits that other members of the fund or their dependants have rights to receive from the fund;
(ii) the provision for, or for the dependants of, other members of the fund who have rights to receive benefits from the fund of additional benefits on a basis that is reasonable, having regard to all the circumstances; and
(iii) any other purposes approved by the Commissioner;
(e)where the right of a member of the fund or of the dependants of a member to receive benefits from the fund is lost or forfeited in the year of income and, at the time of the loss or forfeiture, a specified part of the amount included in the fund was not appropriated for the provision of benefits for, or for dependants of, that member—any additional benefits that have been, or will or may be, provided from the fund for other members of the fund or their dependants by reason of the loss or forfeiture have been, or will or may be, provided on a basis that is reasonable, having regard to all the circumstances; and
(f) at all times during the year of income the terms and conditions that were applicable to the fund—
(i) did not permit a member of the fund to receive any benefits from the fund, except in the event of the sickness or permanent incapacity for work of the member or in such other circumstances as the Commissioner approves, until the member attained the age of sixty years and

required any benefits that a member had a right to receive from the fund to be paid to the member not later than the date on which he attained the age of seventy years; and
(ii) did not permit the dependants of a member to receive any benefits from the fund except in the event of the death of the member,

and the terms and conditions applicable to the fund during the year of income were approved by the Commissioner having regard to—

(g)the reasonableness of the benefits that have been, are being or may be provided from the fund or from any other fund for members of the first-mentioned fund or their dependants;
(h)the amount of the fund in relation to the benefits that are being or may be provided for its members; and
(i) such other matters as the Commissioner thinks fit.

“(3.) An amount equal to five per centum of the cost of the assets that were included at the end of the year of income in the assets of a superannuation fund to which this section applies in relation to the year of income is an allowable deduction in the assessment of the trustee of the fund in respect of income derived by the fund during the year of income.

“(4.) Where, during the year of income, a superannuation fund derived from an asset, being an asset that was included in the assets of the fund at the end of the year of income, income no part of which is taken into account in calculating in accordance with section one hundred and twenty-one ba of this Act the net income of the fund in relation to the year of income, the cost of the assets that were included in the assets of the fund at the end of the year of income shall, for the purposes of the last preceding sub-section, be deemed not to include the cost of the first-mentioned asset.

“(5.) Where, during the year of income, a superannuation fund derived from an asset, being an asset that was included in the assets of the fund at the end of the year of income, income a part only of which is taken into account in calculating in accordance with section one hundred and twenty-one ba of this Act the net income of the fund in relation to the year of income, the cost of the assets that were included in the assets of the fund at the end of the year of income shall, for the purposes of sub-section (3.) of this section, be deemed to include only so much of the cost of the first-mentioned asset as bears to that cost the same

proportion as that part of that income bears to the total amount of income derived by the fund from that asset during the year of income.

“(6.) Where—

(a)a superannuation fund did not derive any income during the year of income from an asset that was included in the assets of the fund at the end of the year of income but derived income from that asset in a preceding year of income; and
(b)during the year of income in which the fund last derived income from that asset, no part of that income was taken into account in calculating in accordance with section one hundred and twenty-one ba of this Act the net income of the fund in relation to that year of income or, in the opinion of the Commissioner, would have been so taken into account if that section had been in force and had applied in respect of income of the fund derived during that year of income,

“(7.) Where—

(a)a superannuation fund did not derive any income during the year of income from an asset that was included in the assets of the fund at the end of the year of income but derived income from that asset in a preceding year of income; and
(b)during the year of income in which the fund last derived income from that asset, a part only of that income was taken into account in calculating in accordance with section one hundred and twenty-one ba of this Act the net income of the fund in relation to that year of income or, in the opinion of the Commissioner, would have been so taken into account if that section had been in force and had applied in respect of income of the fund derived during that year of income,

the cost of the assets that were included in the assets of the fund at the end of the first-mentioned year of income shall, for the purposes of sub-section (3.) of this section, be deemed to include only so much of the cost of the first-mentioned asset as bears to that cost the same proportion as that part of the income derived by the fund from that asset during the year of income referred

to in paragraph (b)of this sub-section bears to the total amount of income derived by the fund from that asset during that last-mentioned year of income.

“(8.) The cost of the assets that were included in the assets of a superannuation fund at the end of the year of income shall, for the purposes of sub-section (3.) of this section, be taken to be reduced by—

(a)so much of the consideration for the acquisition of any asset as has not been paid before the end of the year of income; and
(b)so much of any amount that has been borrowed by the fund before or during the year of income as has not been repaid before the end of the year of income.

“(9.) Subject to the next succeeding sub-section, where—

(a)an asset of a superannuation fund was acquired for a consideration that, in the opinion of the Commissioner, was greater than the value of the asset when it was acquired; or
(b)the whole or a part of the consideration for which an asset was acquired by a superannuation fund was other than money,

the cost of the asset shall, for the purposes of sub-section (3.) of this section, be such amount as the Commissioner determines as being reasonable in all the circumstances.

“(10.) Where a dividend or a part of a dividend payable by a company is satisfied by the issue of shares in that company, the cost of those shares shall, for the purposes of sub-section (3.) of this section, be deemed to be an amount equal to the amount of the dividend or part of the dividend so satisfied by the issue of those shares.”.

Limitation on certain deductions.

15. Section seventy-nine c of the Principal Act is amended by omitting the words “The aggregate of the deductions” and inserting in their stead the words “Subject to sub-section (5.) of section one hundred and twenty-one ba of this Act, the aggregate of the deductions “.

Losses of previous years to be allowable deduction.

16.Section eighty of the Principal Act is amended by omitting sub-sections (5.) and (6.).

17.After section eighty of the Principal Act the following sections are inserted:—

Losses of previous years not to be taken into account unless there is substantial continuity of ownership of shares in company.

“80a.—(1.) Notwithstanding the last preceding section, but subject to the next succeeding sub-section, a loss incurred by a taxpayer, being a company, in a year before the year of income shall not be taken into account for the purposes of the last preceding section unless—

(a) the company satisfies the Commissioner; or

(b)in the case of a company that is not a private company in relation to the year of income, the Commissioner is satisfied that it is reasonable to assume,

that, at all times during the year of income, shares in the company carrying between them—

(c) the right to exercise not less than two-fifths of the voting power in the company;
(d)the right to receive not less than two-fifths of any dividends that may be paid by the company; and
(e)the right to receive not less than two-fifths of any distribution of capital of the company in the event of the winding up, or of a reduction in the capital, of the company,

were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying rights of those kinds.

“(2.) Where a loss incurred by a taxpayer, being a company, in a year before the year of income is not, by virtue of the last preceding sub-section, to be taken into account but the company satisfies the Commissioner that, at all times during the year of income, shares in the company carrying the rights referred to in that sub-section were beneficially owned by persons who, at all times during a part of the year in which the loss was incurred, beneficially owned shares in the company carrying rights of those kinds, the Commissioner may take into account for the purposes of the last preceding section such part of the loss as he considers to be the amount of the loss that was incurred during that part of that year.

Special provisions relating to beneficial ownership of, or rights attached to, shares.

“80b.—(1.) For the purposes of the application of the last preceding section in determining whether a loss incurred by a company in a year before the year of income is to be taken into account, the succeeding provisions of this section have effect.

“(2.) Where shares in the company were allotted after the commencement of the year in which the loss was incurred and the allotment took place in the year of income in which the company was incorporated or within a period of two years, or such further period of a year or years as the Commissioner approves for the purpose of this sub-section in relation to the company, after the end of that year of income, the shares shall be deemed to have been allotted at the commencement of the year in which the loss was incurred and to have been beneficially owned, at all times from the commencement of that year until the time when the shares were in fact allotted, by the persons who beneficially owned the shares immediately after that last-mentioned time.

“(3.) Shares in the company that were beneficially owned by a person at any time shall be deemed to have been beneficially owned by the same person at a later time if the person has died and, at that later time, the shares were owned by the trustee of his estate in his capacity as trustee of that estate or were beneficially owned by a person who received the shares as a beneficiary in that estate.

“(4.) Where shares in the company that were beneficially owned by a person at any time have been transferred by that person to a company and, at a later time, shares in the last-mentioned company carrying between them—

(a)the right to exercise more than one-half of the voting power in the last-mentioned company;
(b)the right to receive more than one-half of any dividends that might be paid by the last-mentioned company; and
(c) the right to receive more than one-half of any distribution of capital of the last-mentioned company in the event of the winding up, or of a reduction in the capital, of that company,

were beneficially owned by that person or, if he has died, were owned by the trustee of his estate in his capacity as trustee of that estate or were beneficially owned by a person who received the shares as a beneficiary in that estate, the Commissioner may, if he considers that it is reasonable to do so, treat the shares in the first-mentioned company as having been beneficially owned by the first-mentioned person at that later time.

“(5.) Where, at any time during the year of income, a person, not being a person who had beneficially owned any shares in the company at all times during the year in which the loss was incurred, had an option by virtue of which he could, directly or indirectly, acquire shares in the company or cause shares in the company to be acquired by another person, whether the option was presently exercisable or not, the Commissioner may treat the shares to which the option related as having been beneficially owned at that time by the person, or any of the persons, for whose benefit or on whose behalf the option was exercisable.

“(6.) Where the Commissioner is satisfied that, by virtue of a provision in the constituent document of the company as in force at any time during the year of income or by virtue of an agreement or arrangement made before the end of the year of income between persons who at the time when the agreement or arrangement was made were, or since that time have become, beneficial owners of shares in the company, shares in the company that—

(a)were beneficially owned at any time during the year of income by persons who beneficially owned any shares

in the company at all times during the year in which the loss was incurred; and
(b)carried any rights at all times during the year of income, have ceased, or will or may cease, at any time after the end of the year of income, to carry those rights, the shares shall be deemed not to have carried those rights at any time during the year of income.

“(7.) Where the Commissioner is satisfied that, by virtue of a provision in the constituent document of the company as in force at any time during the year of income or by virtue of an agreement or arrangement made before the end of the year of income between persons who at the time when the agreement or arrangement was made were, or since that time have become, beneficial owners of shares in the company, shares in the company have commenced, or will or may commence, at any time after the end of the year of income, to carry rights that those shares did not carry at a time during the year of income—

(a)if the shares were not beneficially owned at any time during the year of income by persons who beneficially owned any shares in the company at all times during the year in which the loss was incurred—the shares shall be deemed to have carried those rights at all times during the year of income; and
(b)in any other case—the Commissioner may, if he considers that, having regard to all the circumstances, it is reasonable to do so, treat the shares as having carried those rights at all times during the year of income.

“(8.) In ascertaining whether a person, being a person who beneficially owned shares in the company at all times during the year in which the loss was incurred, beneficially owned any shares in the company at all times during the year of income, any shares (other than shares allotted by the company before the year in which the loss was incurred) that are, or at the option of the company are to be, liable to be redeemed shall be disregarded.

Losses of previous years of a subsidiary not to be taken into account unless there is substantial continuity in ownership of shares in holding company.

“80c.—(1.) Notwithstanding sections eighty and eighty a of this Act, where a company (in this section referred to as ‘the holding company’) had a controlling interest in another company (in this section referred to as ‘the subsidiary company’) at any time during a year in which a loss was incurred by the subsidiary company, the loss shall not be taken into account for the purposes of section eighty of this Act unless the Commissioner is satisfied that, at all times during the year of income, shares in the holding company carrying between them—

(a)the right to exercise not less than two-fifths of the voting power in the company;

(b)the right to receive not less than two-fifths of any dividends that may be paid by the company; and
(c) the right to receive not less than two-fifths of any distribution of capital of the company in the event of the winding up, or of a reduction in the capital, of the company,

were beneficially owned by persons who, at all times during the year in which the loss was incurred by the subsidiary company, beneficially owned shares in the holding company carrying rights of those kinds.

“(2.) Without prejudice to the operation of the last preceding sub-section in relation to the holding company, where a company was, or two or more companies were, interposed between the holding company and the subsidiary company at any time during the year in which the loss was incurred by the subsidiary company, that sub-section also has effect as if each interposed company had a controlling interest in the subsidiary company at that time.

“(3.) For the purposes of the application of sub-section (1.) of this section in determining whether a loss incurred by the subsidiary company in a year before the year of income is to be taken into account, the provisions of sub-sections (3.) to (8.), inclusive, of the last preceding section apply in relation to the holding company and in relation to every interposed company referred to in the last preceding sub-section as if references in those sub-sections to the company were references to the holding company or the interposed company, as the case may be.

Amendment of assessments.

“80d. Notwithstanding anything in any other provision of this Act, the Commissioner may amend an assessment for the purpose of giving effect to the provisions of sub-section (5.), (6.), (7.) or (8.) of section eighty b of this Act (including those provisions as applied by sub-section (3.) of the last preceding section) if the amendment is made within six years after the date upon which the tax became due and payable under the assessment, but nothing in this section limits the power of the Commissioner to amend an assessment in accordance with any other provision of this Act.”.

18.After section eighty-two of the Principal Act the following Subdivision is inserted:—

“Subdivision AA.—Contributions to Superannuation Funds for Benefit of Employees.

Interpretation.

“82aaa.—(1.) In this Subdivision, unless the contrary intention appears—

‘eligible employee’, in relation to a taxpayer, means—
(a)in the case of a taxpayer whether a company or a person other than a company—
(i) an employee of the taxpayer;

(ii) an employee of a company in which the taxpayer has a controlling interest; or
(iii) an employee of a company in which the taxpayer is the beneficial owner of shares but in which the taxpayer does not have a controlling interest (not being an employee who is associated with the taxpayer or who, or a relative of whom, has set apart or paid, or entered into a contract, agreement or arrangement under which he is, or will or may be, required to set apart or pay, amounts as or to a fund for the purpose of providing superannuation benefits for, or for a relative of, the taxpayer); and
(b) in the case of a taxpayer being a company—
(i) an employee of a person that has a controlling interest in the taxpayer; or
(ii) an employee of a company in which a controlling interest is held by a person who also has a controlling interest in the taxpayer;
‘employee’ means a person who is employed by a taxpayer and—
(a) is engaged in producing assessable income of the taxpayer; or
(b)is a resident of Australia or a resident of the Territory of Papua and New Guinea and is engaged in the business of the taxpayer;
‘superannuation benefits’ means individual personal benefits, pensions or retiring allowances.

“(2.) For the purposes of this Subdivision—

(a) a director of a company shall be deemed to be employed by the company; and
(b)shares in a company that is a private company in relation to the year of income shall be deemed to be held indirectly on behalf of or for the benefit of a person (not being a trustee or partnership), whether or not the shares are also to be deemed by virtue of this paragraph to be held indirectly on behalf of or for the benefit of another person, if, in the event of the payment of a dividend by the company, the first-mentioned person would, otherwise than as a shareholder of the company, receive the whole or a part of that dividend if there were

successive distributions of the relative parts of that dividend to and by each of any private companies, trusts or partnerships interposed between the company paying the dividend and that person.

“(3.) For the purposes of the application of this Subdivision in calculating in accordance with section ninety of this Act the net income of a partnership or a partnership loss—

(a)a reference to a relative of a taxpayer shall be read as a reference to a relative of a partner in that partnership; and
(b)a reference to an employee who is associated with a taxpayer shall be read as a reference to an employee who is associated with a partner in that partnership.

“(4.) For the purposes of the application of this Subdivision in relation to a taxpayer, being a partner in a partnership, a reference to an employee of a taxpayer shall be read as including a reference to an employee of the partnership.

“(5.) A reference in this Subdivision to the remuneration paid to an employee by a taxpayer during a year of income in respect of the employment of the employee by the taxpayer shall, if the employee is associated with the taxpayer, be read as a reference to so much only of that remuneration as, in the opinion of the Commissioner, is reasonable in amount.

Associated persons.

“82aab. For the purposes of this Subdivision, an employee is associated with a person if—

(a) the employee is a relative of the person; or
(b)the person is a company that is a private company in relation to the year of income and, at any time during the year of income—
(i) the employee, or a relative of the employee, was a director of the company;
(ii) shares in the company were beneficially owned by, or held indirectly on behalf of or for the benefit of, the employee or a relative of the employee;
(iii) the employee, or a relative of the employee, was a director of another company that is a private company in relation to the year of income of that other company that, in the opinion of the Commissioner, corresponded to the first-mentioned year of income and shares in the first-mentioned company were beneficially owned by, or held indirectly on behalf of or for the benefit of, the other company;

(iv) the employee, or a relative of the employee, was the beneficial owner of shares in, or was a director of, another company that is a private company in relation to the year of income of that other company that, in the opinion of the Commissioner, corresponded to the first-mentioned year of income and shares in the other company were beneficially owned by, or held indirectly on behalf of or for the benefit of, the first-mentioned company; or
(v) the employee, or a relative of the employee, was the beneficial owner of shares in, or was a director of, another company that is a private company in relation to the year of income of that other company that, in the opinion of the Commissioner, corresponded to the first-mentioned year of income and shares in the other company were beneficially owned by, or held indirectly on behalf of or for the benefit of, a person who beneficially owned shares in the first-mentioned company or on whose behalf or for whose benefit shares in the first-mentioned company were indirectly held.

Deduction for contributions to fund for employees.

“82aac. Where a taxpayer, for the purpose of making provision for superannuation benefits for, or for dependants of, an eligible employee, sets apart or pays in the year of income an amount or amounts as or to a fund or funds from which the benefits are to be provided, and the right of the employee or dependants to receive the benefits is fully secured, the amount or the sum of the amounts, as the case may be, so set apart or paid is, subject to the succeeding provisions of this Subdivision, an allowable deduction.

Deduction to be reduced where employee is associated with taxpayer.

“82aad. Where an amount is, or amounts are, set apart or paid in the year of income by a taxpayer as or to a fund or funds for the purpose of making provision for superannuation benefits for, or for dependants of, an eligible employee, being an employee associated with the taxpayer, the amount or the sum of the amounts, as the case may be, is, subject to the succeeding provisions of this Subdivision, allowable as a deduction by virtue of the last preceding section only to the extent to which, in the opinion of the Commissioner, the amount or amounts would have been so set apart or paid if the employee had not been associated with the taxpayer.

Maximum deduction allowable for all taxpayers in respect of the one employee.

“82aae. The deduction, or the sum of the deductions, allowable under this Subdivision in an assessment or assessments of a taxpayer or taxpayers in respect of income of the year of income

in respect of amounts set apart or paid by the taxpayer or taxpayers as or to a fund or funds for the purpose of making provision for superannuation benefits for, or for dependants of, any one employee—

(a) shall not exceed whichever is the greater of the following amounts:—
(i) Two hundred pounds; and
(ii) five per centum of the total remuneration paid to the employee by taxpayers during the year of income of the employee that, in the opinion of the Commissioner, corresponded to the first-mentioned year of income in respect of his employment by those taxpayers; or
(b)if the Commissioner is of the opinion that there are special circumstances that justify the allowance of a greater deduction, or of deductions of a greater sum, than the amount ascertained in accordance with the last preceding paragraph—shall be such amount, being greater than the amount so ascertained, as he considers reasonable.

Ascertainment of deduction allowable when two or more taxpayers contribute for the one employee.

“82aaf.—(1.) Where deductions are allowable under this Subdivision in the assessments of two or more taxpayers (in this sub-section referred to as ‘the taxpayers’) in respect of income of the year of income in respect of amounts respectively set apart or paid by the taxpayers as or to a fund or funds for the purpose of making provision for superannuation benefits for, or for dependants of, any one employee and the sum of the deductions that would, but for this and the last preceding section, be allowable under this Subdivision in respect of the amounts so set apart or paid exceeds the sum of the deductions that are allowable under this Subdivision in respect of those amounts, the deduction allowable under this Subdivision in the assessment of such a taxpayer in respect of the amount or amounts so set apart or paid by him is, subject to the succeeding provisions of this Subdivision, an amount equal to the sum of—

(12.) For the purposes of Division 9b of Part III. of the Principal Act, where the trustee of a superannuation fund to which this section applies has been, or is liable to be, assessed as provided by sub-section (7.) of this section in respect of income of the fund derived during the prescribed period—

(a)the cost of all the assets that were included in the assets of the fund at any time during the prescribed period shall be deemed to be reduced by the cost of the assets

from which, during that period, the fund derived the income in respect of which the trustee has been, or is liable to be, assessed as provided by sub-section (7.) of this section;
(b)the cost of all the assets that were included in the assets of the fund as at the first day of March, One thousand nine hundred and sixty-one, shall be deemed to be reduced by the cost of the assets from which, during the year of income that commenced on the first day of July, One thousand nine hundred and sixty, the fund derived income in respect of which, in the opinion of the Commissioner, the trustee would have been liable to be assessed as provided by sub-section (7.) of this section if this section had been in force during that year of income and had applied in respect of income of the fund derived during that year of income; and
(c) the amount of the investment income of the fund derived during the year of income that commenced on the first day of July, One thousand nine hundred and sixty, shall be deemed to be reduced by the amount of the income, if any, of the fund derived during that year of income in respect of which, in the opinion of the Commissioner, the trustee would have been liable to be assessed as provided by sub-section (7.) of this section if this section had been in force during that year of income and had applied in respect of income of the fund derived during that year of income.

(13.) In determining for the purposes of Division 9b of Part III. of the Principal Act whether a fund is a superannuation fund within the meaning of that Division, the operation of this section shall be disregarded.