Income Tax Assessment Act 1938

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INCOME TAX ASSESSMENT.

No. 46 of 1938.

An Act to amend the Income Tax Assessment Act 1936-1937.

[Assented to 30th November, 1938.]

[Date of commencement 28th December, 1938.]

BE it enacted by the King’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 Assessment Act 1938.

(2.) The Income Tax Assessment Act 1936-1937 is in this Act referred to as the Principal Act.

(3.) The Principal Act, as amended by this Act, may be cited as the Income Tax Assessment Act 1936-1938.

Officers to observe secrecy.

2. Section sixteen of the Principal Act is amended by inserting, after paragraph (d) of sub-section (4.), the following paragraph:—

“(da) the National Insurance Commission for the purpose of the administration of any law of the Commonwealth relating to insurance;”.

Exemptions.

3. Section twenty-three of the Principal Act is amended by omitting from paragraph (m) the word “thirty-seven” and inserting in its stead the word “forty-seven”.

Ex-Australian profits.

4. Section forty-two of the Principal Act is amended by omitting the words “any, and if so what part,” and inserting in their stead the words “the whole or any part (and, if a part, what part)”.

Dividends.

5. Section forty-four of the Principal Act is amended—

(a) by omitting sub-paragraph (i) of paragraph (b) of sub-section (2.) and inserting in its stead the following subparagraph:—

“(i) the amount remaining after deducting from income derived from sources out of Australia (not being income which under this or the previous Act is or has been assessable income of the company) any losses or outgoings incurred in gaining or producing that income which would have been allowable deductions if that income had been assessable income;”;

(b) by inserting at the end of sub-paragraph (ii) of paragraph (b) of sub-section (2.) the word “or”;

(d) by omitting paragraph (c) of sub-section (2.) and inserting in its stead the following paragraph:—

“(c) paid by a company wholly and exclusively out of the amount remaining after deducting from income (not being income which under this or the previous Act is or has been assessable income of the company)—

(i) which the company has derived from the working by it of a mining property in Australia or in the Territory of New Guinea; or

(ii) which the company has received as dividends from a company which derived income from the working by it of a mining property in Australia or in the Territory of New Guinea and which are paid wholly and exclusively out of income so derived,

any losses or outgoings incurred in gaining or producing that income which would have been allowable deductions if that income bad been assessable income.”.

Deductions in case of composite incomes.

6. Section fifty of the Principal Act is amended by omitting paragraphs (a), (b) and (c) and inserting in their stead the following paragraphs:—

“(a) where a deduction or part of a deduction relates directly to income from dividends (whether of the year of income or of a previous year of income) the deduction or part of the deduction, as the case requires, shall be made successively

from income from dividends, from income from property other than dividends and from income from personal exertion;

“(b) where a deduction or part of a deduction relates directly to the income from property other than dividends (whether of the year of income or of a previous year of income) the deduction or part of the deduction, as the case requires, shall be made successively from income from property other than dividends, from income from dividends, and from income from personal exertion; and

“(c) in all other cases, the deduction or part of the deduction shall be made successively from income from personal exertion, from income from property other than dividends and from income from dividends.”.

7. After section sixty-two of the Principal Act the following section is inserted:—

Expenditure pursuant to franchise.

“62a.—(1.) Where a franchise requires that the undertaking which is the subject of the franchise shall become the property of the authority granting the franchise after the expiration of the period of the franchise without reimbursement of any of the expenditure thereon, a proportionate part of the expenditure which the owner of the franchise is required by the franchise to incur, and which he has in fact incurred, shall be an allowable deduction to him so long as he continues to be the owner of the franchise.

“(2.) The proportionate part of the expenditure referred to in the last preceding sub-section shall be calculated by distributing the amount of that expenditure proportionately over the period of the franchise unexpired at the date when the construction of the undertaking is completed, or, where there is no period of years fixed as the duration of the franchise, over such period as the Commissioner determines:

Provided that, where any income is derived in respect of the undertaking before its construction is completed, the proportionate part of the expenditure which may be an allowable deduction shall be as determined by the Commissioner.

“(3.) The aggregate of the deductions allowed by this section to any person shall not exceed the expenditure which that person is required by the franchise to incur, and which he has in fact incurred, and where in any case the aggregate of the deductions equals the amount of that expenditure no further deduction shall be allowed in pursuance of this section.

“(4.) For the purposes of this section, ‘franchise’ means a grant by the Commonwealth or a State, or by a public authority constituted by or under an Act or State Act, whereby in consideration of the construction and maintenance of an undertaking of public utility a person is, during some limited period, authorized to collect and retain the revenue earned by that undertaking.”.

Gifts and contributions.

8. Section seventy-eight of the Principal Act is amended—

(a) by inserting in paragraph (a) of sub-section (1.), after the word “upwards”, the words “of money or of property other than money which was purchased by the taxpayer within twelve months immediately preceding the making of the gift,”; and

(b) by omitting sub-section (2.) and inserting in its stead the following sub-section:—

“(2.) For the purposes of this section, the value of a gift of property other than money shall be the value of the property at the time of the making of the gift or the amount paid by the taxpayer for the property whichever is the less.”.

Concessional deductions.

9. Section seventy-nine of the Principal Act is amended—

(a) by omitting from paragraph (a) the words “,in respect of a female relative having the care of any of his” and inserting in their stead the words, “or widow, in respect of a female relative having the care of any of the taxpayer’s”;

(b) by omitting from sub-paragraph (i) of paragraph (e) the word “or” (last occurring); and

“;or (iii) payments made by the taxpayer to any fund established by any Act or State Act relating to insurance for the personal benefit of the taxpayer or of his spouse or children.”.

Definitions.

10. Section eighty-three of the Principal Act is amended by adding at the end thereof the following sub-section:—

“(2.) Where a lease is sold together with other assets the amount of the consideration attributable to the lease shall, subject to sub-section (3.) of section thirty-six and to sub-section (3.) of section fifty-nine of this Act, be—

(a) where a separate amount is allocated to the lease in any contract of sale or arrangement and the Commissioner is satisfied that that separate amount is fair and reasonable—the amount so allocated; or

(b) where no separate amount is so allocated or the Commissioner is not satisfied that the amount allocated is fair and reasonable—the amount determined by the Commissioner.”.

Partner not in receipt or control of share.

11. Section ninety-four of the Principal Act is amended by omitting from sub-section (1.) the words “one, had been received by the other partner, if only one, or divided between the other partners, if more than one, in proportion to their respective interests in the partnership,” and inserting in their stead the words:—

“one—

(a) had been received by the partner who has the real and effective control of that share; or

(b) had been divided between such other partners as have the real and effective control of that share in proportion to the extent to which, in the opinion of the Commissioner, they respectively have the real and effective control of that share,

(as the case may be)”.

Definitions.

12. Section one hundred and three of the Principal Act is amended by omitting from sub-section (1.) the definition of “distributable income” and inserting in its stead the following definition:—

“‘distributable income’ means the amount obtained by deducting from the taxable income of a company—

(a) all taxes which, in the year of income, are paid under this or the previous Act, or paid in any country out of Australia in respect of income of the company which is taxable under this or the previous Act; and

(b) the net loss, except to the extent to which it is a loss of a capital nature, incurred by the company in the year of income in carrying on its business out of Australia;”.

13. After section one hundred and thirty-five of the Principal Act, the following section is inserted in Division 12 of Part III.:—

Freights payable under certain agreements.

“135a. Where goods are shipped in pursuance of an agreement of the kind specified in section seven c of the Australian Industries Preservation Act 1906-1937, the amount paid or payable to the owner or charterer of the ship in respect of the carriage of those goods shall, for the purposes of this Division, be deemed to be the amount remaining after deducting from the amount which would be payable according to the gross rate of freight specified in the agreement the amount of any rebate allowed in pursuance of the agreement or any payment, whenever made, by the owner or charterer, or out of funds provided by the owner or charterer, to any person or persons being the owner or shipper of the goods or the agent of either of them in respect of the shipment.”

14. Section one hundred and forty-eight of the Principal Act is repealed and the following section inserted in its stead:—

Re-insurance with non-resident.

“148. Notwithstanding anything contained in this Act, where a person carrying on the business of insurance in Australia reinsures the whole or part of any risk with another person carrying on a similar business, but not in Australia—

(a) the premiums paid or credited in respect of any such reinsurance shall not be—

(i) an allowable deduction to the person carrying on the business of insurance in Australia; or

(ii) included in the assessable income of the person carrying on the business of insurance out of Australia; and

(b) the income of the person carrying on the business of insurance in Australia shall not include sums recovered from the person carrying on business out of Australia in respect of a loss on any risk so reinsured.”.

Penalty for unpaid tax.

15. Section two hundred and seven of the Principal Act is amended by inserting in sub-section (1.), after the word “time” (second occurring), the words “or, where an extension of time has been granted under the last preceding section, from such date as the Commissioner determines, not being a date prior to the date on which the tax was originally due and payable”.

Person leaving Australia to obtain certificate.

16. Section two hundred and ten of the Principal Act is amended—

(a) by omitting the words “issue a certificate—” and inserting in their stead the words “, if he is satisfied—”;

(b) by omitting from paragraph (a) the word “or”; and

“;or (c) that the income tax payable by that person is irrecoverable,

issue a certificate that, for the purposes of the Act, there is no objection to the departure of that person from Australia.”.

Application of Act.

17.—(1.) The amendments effected by this Act, other than the amendment effected by section fourteen, shall apply to all assessments for the financial year beginning on the first day of July, One thousand nine hundred and thirty-eight and all subsequent years:

Provided that the amendments effected by section five of this Act, insofar as they require dividends to be paid out of an amount ascertained as specified therein in lieu of out of income as specified in sub-section (2.) of section forty-four of the Principal Act, shall not apply to dividends paid prior to the commencement of this Act.

(2.) The amendment effected by section fourteen of this Act shall apply to all assessments for the financial year beginning on the first day of July, One thousand nine hundred and thirty-six and all subsequent years.

Overview

The Income Tax Assessment Act 1938 was enacted to amend the Income Tax Assessment Act 1936-1937, addressing specific issues and gaps in the existing legislation. This Act was passed by the Parliament of the Commonwealth of Australia and received royal assent on 30 November 1938, commencing on 28 December 1938. Its primary policy objective was to provide clarity and adjustments to various aspects of income tax, including deductions, allowances, and the treatment of certain types of income and expenditure. By updating and refining the provisions of the earlier Act, this legislation aimed to improve the administration and compliance of income tax laws in Australia. The Act introduced amendments to sections concerning officer secrecy, exemptions, ex-Australian profits, dividends, deductions in case of composite incomes, and several other areas. These changes were intended to enhance the accuracy and fairness of the tax system, ensuring that taxpayers were assessed correctly and that the government could effectively collect the necessary revenue.

Scope and Application

The Income Tax Assessment Act 1938 amends the Income Tax Assessment Act 1936-1937 (referred to as the Principal Act), providing updates to various sections concerning income tax liabilities for individuals and companies. The Act applies to all assessments for the financial year beginning on the first day of July 1938 and all subsequent years, with certain provisions applying from earlier financial years. This legislation impacts taxpayers, including individuals, companies, and other entities, by modifying rules related to deductions, exemptions, and specific income sources. It affects both residents and non-residents, with particular attention to income derived from Australian and overseas sources, dividends, and expenditures related to franchises. Certain amendments, such as those in section fourteen, apply retroactively to financial years beginning from 1 July 1936. The Act does not specify any exclusions or exemptions beyond those detailed within its sections, and its provisions extend through subordinate instruments as necessary for implementation and enforcement.

Key Provisions

The Income Tax Assessment Act 1938 (C1938A00046) introduces several amendments to the Income Tax Assessment Act 1936-1937, which is referred to as the Principal Act. This Act, as amended, is referred to as the Income Tax Assessment Act 1936-1938. It makes specific changes to the definitions, exemptions, deductions, and other provisions of the Principal Act to better align with contemporary fiscal policies and practices. The Act outlines the main operative sections that require or permit certain actions. For example, section 2 requires officers to observe secrecy concerning certain information, while section 3 changes the exemption threshold in section 23 of the Principal Act from 37 to 47. Section 4 modifies the definition of "ex-Australian profits" in section 42, allowing for the taxation of the whole or any part of such profits. Section 5 revises the rules for dividends, specifying how losses and outgoings are to be deducted when calculating taxable income from dividends. Section 6 details the order in which deductions should be applied to different types of income, while section 7 introduces a new section (62A) that allows for the deduction of proportionate expenditure on franchises. Section 8 adjusts the rules for gifts and contributions, and section 9 expands the definition of concessional deductions. Section 10 modifies the valuation of leases sold with other assets, and section 11 changes the criteria for determining who in a partnership has received or controlled income. Section 12 redefines "distributable income" for companies, and section 13 introduces a new section (135A) that specifies how freights payable under certain agreements should be treated. Section 14 repeals section 148 of the Principal Act and replaces it with new provisions regarding reinsurance with non-residents. Finally, sections 15 and 16 amend sections 207 and 210 of the Principal Act, respectively, to address penalties for unpaid tax and the issuance of certificates for persons leaving Australia. The Act imposes various obligations and requirements on the parties it governs. For instance, section 2 requires officers to maintain confidentiality regarding specific information. Section 5 mandates that dividends be calculated by deducting allowable losses and outgoings from income derived from certain sources. Section 6 dictates the order in which deductions should be applied to different types of income. Section 7 allows for the deduction of proportionate expenditure on franchises, subject to certain conditions. Section 8 requires the valuation of gifts of property to be based on the lesser of the property's value at the time of the gift or the amount paid for the property within the preceding twelve months. Section 9 allows for additional concessional deductions for certain payments made to insurance funds. Section 10 specifies how the value of a lease sold with other assets should be determined. Section 11 changes the criteria for determining who in a partnership has received or controlled income. Section 12 redefines "distributable income" for companies. Section 13 specifies how freights payable under certain agreements should be treated. Section 14 provides new rules for reinsurance with non-residents. Finally, sections 15 and 16 amend provisions related to penalties for unpaid tax and the issuance of certificates for persons leaving Australia. The Act also sets out specific offences, penalties, or civil and criminal consequences for breach. Section 207, as amended by section 15, imposes penalties for unpaid tax, including interest on the unpaid amount. The penalties are calculated based on the time the tax was originally due and payable, or the date determined by the Commissioner if an extension of time has been granted. Section 210, as amended by section 16, specifies that if a person leaving Australia has no outstanding tax or irrecoverable tax, the Commissioner must issue a certificate allowing the departure. Failure to adhere to the requirements and provisions of the Act may result in financial penalties or legal consequences as specified.

Area of Law: Taxation Law
Instrument: Act
Concepts: Definitions & Interpretation; Commencement Provisions; Offence Provisions; Reporting & Disclosure Obligations; Repeal & Amendment

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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