Income Tax Assessment Act 1940

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INCOME TAX ASSESSMENT.

 

No. 17 of 1940.

An Act to amend the Income Tax Assessment Act 1936–1939.

[Assented to 27th May, 1940.]

[Date of commencement, 24th June, 1940.]

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. 1940.

(2.) The Income Tax Assessment Act 1936–1939 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 1936–1940.

Parts.

2. Section five of the Principal Act is amended by inserting before the words “Part IV.” the words “Part IIIa.—Further Tax on Undistributed Income of Company.”.

Exemptions.

3.—(1.) Section twenty-three of the Principal Act is amended by adding at the end thereof the following paragraph:—

“(s) in the case of any person enlisted in or appointed to the Naval, Military or Air Forces of the Commonwealth or any part of the King’s dominions or of any Ally of Great Britain for service outside Australia during the present


war between His Majesty the King and Germany—the pay and allowances earned by him as a member of those Forces during the period commencing on the Third day of September, One thousand nine hundred and thirty-nine or on the date of his enlistment or appointment (whichever is the later date) and terminating on the date of his discharge or the termination of his appointment:

Provided that this paragraph shall not apply to any pay or allowances so earned during the year of income by a member of the Forces who does not at any time during the period commencing on the Third day of September, One thousand nine hundred and thirty-nine and terminating one year after the close of that year of income—

(i) in the case of a member of the Naval Forces of the Commonwealth—serve in a sea-going ship; or

(ii) in the case of a member of the Military or Air Forces of the Commonwealth—embark for service outside Australia.”

(2.) The amendment effected by the last preceding sub-section shall continue in force until twelve months after the date of the issue of a proclamation that the war between His Majesty the King and Germany has ceased, and no longer.

Dividends.

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

(a) by omitting from paragraph (b) of sub-section (2.) the word “or” (last occurring); and

(b) by inserting after paragraph (c) of sub-section (2.) the following word and paragraph:—

“; or (d) paid by a company wholly and exclusively out of the amount remaining after deducting from income (not being income in respect of which the company has paid or is liable to pay tax under this Act)—

(i) which the company has derived from the carrying on by it of mining operations in Australia or in the Territory of New Guinea for the purpose of obtaining petroleum; or

(ii) which the company has received as dividends from another company and which dividends are, by reason of the last preceding sub-paragraph, not included in the assessable income of the first-mentioned company, and out of which dividends are paid wholly and exclusively by the first-mentioned company,

all outgoings (other than outgoings of a capital nature) incurred in gaining or producing that income.”.


Rebate on dividends.

5. Section forty-six of the Principal Act is amended by inserting after sub-section (1.) the following sub-section:—

“(2.) For the purposes of the last preceding sub-section the rate of tax payable by companies shall not include any further tax imposed on that portion of the taxable income of a company which has not been distributed as dividends.”.

Gifts and contributions.

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

(a) by omitting from sub-paragraph (vi) of paragraph (a) the word “and”; and

(b) by adding at the end of paragraph (a) the following sub-paragraphs:—

“(viii) a public institution or public fund established and maintained for the comfort, recreation or welfare of members of the Naval, Military or Air Forces of the Commonwealth; and

(ix) the Commonwealth, when made for purposes of defence.”.

Statutory exemption.

7. Section eighty-one of the Principal Act is amended by omitting from paragraph (a) of sub-section (1.) the words “Two pounds” and inserting in their stead the words “One pound”.

Definitions

8. Section one hundred and three of the Principal Act is amended—

(a) by inserting in paragraph (a) of the definition of “distributable income” in sub-section (1.), after the word “Act” (first occurring), the words “,or under any Act passed by the Parliament imposing a war-time tax upon companies”;

(b) by inserting in paragraph (a) of the definition of “distributable income” in sub-section (1.), after the word “Act” (second occurring), the words “less any refund received in the year of income of any tax to which this paragraph refers”;

(c) by omitting from paragraph (e) of sub-section (2.) the word “nine” and inserting in its stead the word “six”;

(d) by omitting from paragraph (e) of sub-section (2.) the words “two-thirds” (wherever occurring) and inserting in their stead the words “three-fourths”; and

(e) by adding after paragraph (e) of sub-section (2.) the following paragraph:—

“(f) where dividends are paid either wholly or in part out of the net profits of a company of the year of income and those profits are partly liable to and partly exempt from income tax under this Act the amount of dividends paid out of the taxable income of that year shall be deemed to be the amount which bears the same proportion to the total amount of dividends paid out of those profits as that portion of the net profits of the year of income which is liable to income tax under this Act bears to the total net profits of the company of the year of income:


Provided that this paragraph shall not apply to the profits or income specified in paragraph (b), (c) or (d) of sub-section (2.) of section forty-four of this Act where a dividend is paid wholly and exclusively from the profits or income so specified.”.

Assessment of additional tax.

9. Section one hundred and four of the Principal Act is amended by omitting the word “nine” (wherever occurring) and inserting in its stead the word “six”.

Deduction of unrecouped capital expenditure of prospecting or mining for petroleum.

10. Section one hundred and twenty-three a of the Principal Act is amended—

(a) by inserting before the definition of “petroleum” the following definitions:—

“‘net assessable income’ means the amount remaining after deducting from the assessable income derived by the taxpayer from the sale of petroleum and its products all outgoings (other than outgoings of a capital nature) incurred in gaining or producing that assessable income and any taxes paid in respect of that assessable income;

“‘net exempt income’ means the amount remaining after deducting from the exempt income derived by the taxpayer from the sale out of Australia of petroleum and its products all outgoings (other than outgoings of a capital nature) incurred in gaining or producing that exempt income and any taxes paid in respect of that exempt income;”; and

(b) by omitting from the definition of “unrecouped capital expenditure” all the words after the words “treatment of that petroleum” and inserting in their stead the words “the total of the net assessable income derived by the taxpayer prior to the year of income (except income in respect of which the taxpayer has paid or is liable to pay tax under this Act) and the net exempt income derived prior to and during the year of income.”.

11. After Part III. of the Principal Act the following Part is inserted:—

“Part IIIa.—Further Tax on Undistributed Income of Company.

Interpretation.

“160a. For the purposes of this Part a company shall not include a private company.

Further tax on undistributed income of a company.

“160b. Further tax at the rate declared by the Parliament shall be levied and paid on that portion of the taxable income of a company which has not been distributed as dividends.


Undistributed Income of company.

“160c.—(1.) For the purpose of the further tax imposed on that portion of the taxable income of a company which has not been distributed as dividends, that portion shall be ascertained—

(a) by deducting from the taxable income of the company—

(i) all taxes which, in the year of income, are paid under this or the previous Act, or under any Act passed by the Parliament imposing a war-time tax upon companies, or paid in any country out of Australia in respect of income of the company which is taxable under this or the previous Act less any refund received in the year of income of any tax to which this sub-paragraph refers; and

(ii) 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:

Provided that the deduction specified in this sub-paragraph shall not be made in the case of a company the taxable income of which is assessed under Division 12, 13, 14 or 15 of Part III. of this Act; and

(b) by deducting from the amount remaining after making the deductions specified in paragraph (a) of this sub-section—

(i) an amount equal to twenty-five per centum of the amount so remaining; and

(ii) the amount of dividends paid out of the taxable income of the year of income before the expiration of six months after the close of that year.

“(2.) Notwithstanding anything contained in the last preceding sub-section, where any amount is an allowable deduction under this Act for the purpose of ascertaining the taxable income of the company, that amount shall not be deducted from the taxable income as provided in that sub-section for the purpose of ascertaining the portion of the taxable income of the company which has not been distributed as dividends.

“(3.) Where the annual accounting period of a non-resident company adopted for the purpose of the presentation of its profit and loss account to its shareholders differs from the year of income of that company for the purposes of this Act, the Commissioner may, for the purpose of ascertaining the amounts to be deducted from the taxable income of the company in accordance with paragraph (a) and subparagraph (ii) of paragraph (b) of sub-section (1.) of this section (but not for the purpose of ascertaining the taxable income) treat that annual accounting period as being identical with the year of income which, in his opinion, is most appropriate.


“(4.) Where dividends are paid either wholly or in part out of the net profits of a company of the year of income and those profits are partly liable to and partly exempt from income tax under this Act the amount of dividends paid out of the taxable income of that year shall, for the purposes of this Part, be deemed to be the amount which bears the same proportion to the total amount of dividends paid out of those profits as that portion of the net profits of the year of income which is liable to income tax under this Act bears to the total net profits of the company of the year of income:

Provided that this sub-section shall not apply to the profits or income specified in paragraph (b), (c) or (d) of sub-section (2.) of section forty-four of this Act where a dividend is paid wholly and exclusively from the profits or income so specified.

Assessments of tax on undistributed dividends.

“160d. The Commissioner shall make an assessment of that portion of the taxable income of a company which has not been distributed as dividends and of the further tax payable thereon.”.

When tax payable.

12. Section two hundred and four of the Principal Act is amended by inserting after sub-section (1.) the following sub-section:—

“(1a.) Notwithstanding anything contained in the last preceding sub-section, where any income tax is assessed under the provisions of Division 7 of Part III. or of Part IIIa. of this Act that tax shall be due and payable by the person liable to pay the tax thirty days after the service of a notice of assessment.”.

Application of Act.

13.—(1.) The amendments effected by this Act, other than that effected by section twelve of this Act, shall apply to all assessments for the financial year beginning on the first day of July, One thousand nine hundred and forty, and all subsequent years.

(2.) The amendment effected by section twelve of this Act shall apply to all assessments made after the commencement of this Act.

Overview

The Income Tax Assessment Act 1940 was enacted to amend the Income Tax Assessment Act 1936–1939, addressing various fiscal and legislative needs in response to the exigencies of the Second World War. The Act was passed by the Commonwealth Parliament and aimed to facilitate a more effective collection of taxes to support the war effort, particularly by introducing a further tax on undistributed income of companies and modifying exemptions and rebates. The Act introduced measures such as additional tax on undistributed company income, amendments to dividend tax provisions, and modifications to exemptions for military personnel, ensuring that the tax system was responsive to the needs of the time. The Act also included provisions for statutory exemptions and deductions, particularly targeting companies engaged in mining operations for petroleum, and adjusted definitions and assessment methods to reflect the economic and fiscal realities of wartime Australia. The amendments introduced by this Act aimed to streamline tax collection and ensure that the tax burden was fairly distributed among various entities and individuals, aligning with the overarching policy objectives of supporting the war effort and maintaining fiscal stability.

Scope and Application

The Income Tax Assessment Act 1940 applies to individuals and entities subject to income tax under the Commonwealth of Australia. The Act amends the Income Tax Assessment Act 1936–1939, modifying tax provisions to reflect the exigencies of World War II. The amendments apply to all assessments for the financial year beginning on the 1st of July, 1940, and all subsequent years, except for the amendment concerning the assessment of tax on undistributed dividends, which applies to all assessments made after the commencement of this Act. The Act includes provisions for exemptions on income earned by members of the Naval, Military or Air Forces of the Commonwealth serving outside Australia during the war, and adjustments to the taxation of dividends, particularly those derived from mining operations in Australia or the Territory of New Guinea. Additionally, it introduces a further tax on undistributed income of companies, which is levied on the portion of a company's taxable income not distributed as dividends. The Act also provides for deductions related to unrecouped capital expenditure in prospecting or mining for petroleum and modifies the definition of certain terms for the purposes of income tax assessment.

Key Provisions

The Income Tax Assessment Act 1940 introduces several key provisions that amend the Income Tax Assessment Act 1936–1939. Firstly, the Act inserts a new Part IIIa (sections 160a to 160d) which imposes an additional tax on undistributed income for companies (section 160b). This tax applies to the portion of a company's taxable income that has not been distributed as dividends. The rate of this additional tax is to be declared by Parliament. To ascertain the taxable portion of undistributed income, the Act allows deductions for taxes paid and net losses incurred, with specific exclusions for companies assessed under certain divisions of Part III of the Principal Act (section 160c). The Act further imposes obligations on companies to ensure they comply with the new tax provisions, including accurate calculation of undistributed income and timely payment of the additional tax. The Commissioner is tasked with making assessments of the undistributed income and the corresponding tax payable (section 160d). Companies must ensure their financial records are maintained in a manner that facilitates these assessments. The Act also provides for specific deductions and exemptions, such as the exclusion of certain dividends and the allowance for deductions of outgoings incurred in gaining or producing income (section 4). In terms of penalties and consequences, the Act stipulates that any failure to comply with the new tax provisions could result in legal and financial repercussions. The exact nature and extent of these penalties are not detailed within the Act itself but would generally include fines or other financial penalties as prescribed by applicable tax laws. The Act also mandates that any income tax assessed under the new provisions must be paid within thirty days of the notice of assessment being served (section 12). The Act further clarifies definitions and interpretations necessary for its provisions to operate effectively. It adjusts the definition of "distributable income" to include income derived under specific war-time tax Acts and introduces new definitions for "net assessable income" and "net exempt income" (sections 7 and 10). These definitions are crucial for determining the taxable basis for companies engaged in specific activities, such as mining for petroleum. The Act also modifies the statutory exemption threshold from two pounds to one pound (section 7). Overall, the Income Tax Assessment Act 1940 aims to introduce a structured approach to taxing undistributed company income, with clear guidelines on assessment, deductions, and penalties for non-compliance.

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Taxation Law
Instrument
Act
Concepts
Definitions & Interpretation
Offence Provisions
Reporting & Disclosure Obligations
Compliance Obligations
Exemptions & Exclusions
Assessments of tax on undistributed dividends

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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.