TAXATION LAW

Ashburton Guardian, Volume 59, Issue 299, 30 September 1939, Page 2

TAXATION LAW

IMPORTANT ALTERATIONS. INSURANCE DEDUCTIONS LOWERED. LAND TAX CONCESSIONS. (Per Press Association). WELLINGTON, September 29. Important alterations to the present taxation law are embodied in the Land and Income Tax Amendment Bill which was introduced by Governor-General’s Message in the House to-day. The Bill which is also designed to correct a number of anomalies in the incidence of taxation, will apply to income derived during the current income year. Two of the main provisions are those limiting to £l5O the deduction from taxable income for insurance superannuation purposes and allowing land tax levied on land used in the production of assessable" income to be claimed as a deduction for income tax purposes. Exemption from the payment of income tax is given to members of the New' Zealand Forces serving outside New Zealand during the war, and a soldier’s pay does not operate to increase the rate of tax on the balance of his income. An employer who pays salary to an employee who is serving with the forces is entitled to claim a deduction from his assessable income in respect of the amount paid to the employee with a limitation of £4 a week. No Exemption fo Housekeeper. \ The Bill removes from unincorporated bodies the special personal exemption. of £2OO allowed to individuals which they are at present granted. To relieve hardship on certain persons absent from the Dominion for health.reasons, they are granted an exemption of £2OO whether or not their incomes exceed that sum. A pro rata exemption up to £2OO based on the period in New Zealand is granted to persons such as shearers, slaughtermen, or non-resident traders, who come from abroad. Previously there was no such exemption. A special exemption of £SO is also granted.to absentees. The exemption of £SO which has been granted in the past to a childless widower in respect of a housekeeper is removed, but the Bill confers' the right to exemption on a divorced person with dependent children. "Where death removes a dependent, the taxpayer is granted full exemption for that year instead o.f a portion only. The granting of special exemption in respect of I contributions toward the support of ar.y dependent relative is to bo permitted except in eases where the relative is a benficiary under the Social Security Act. Insurance Limit.

One of the most important clauses is that limiting the sum which may be claimed as special • exemption on account of life insurance premiums, superannuation and national provident fund contributions, etc., to £l5O a year, or 15 per cent, of assessable income, whichever is the less. Authority is given for the aggregation of the incomes of husband and wife for taxation purposes. A long clause provides for the assessment of incomes of husband and wife living together at the rate of tax prescribed for the combined figure, except where the income of one is less than £SO. Where separate assessments are made, the personal exemptions of £250 allowable to them both is divided between them in accordance with, respective amounts of i:.eir assessable income. Other personal exemptions such as those for dependent children will be apportioned as the Commissioner of Taxes thinks fit. Income from Land. Income tax is to be levied on all income derived from the use or pccupation of land whether the unimproved value is less than £3OOO or not. A taxpayer who incurs legal expenses in acquiring a lease or in raising money on mortgage will be able to claim a deduction for those expenses if the property or money is used in the production of his assessable income. Any increase or decrease in the value of trading stock is to be taken into account when determining a ta>:pn>«<*'s assessable income. When a basinet's JS realised the whole of the purchase moneys received is to be taken into account in computing the assessable income. Farmers are to be empowered to fix a standard value for their livestock. This means that their assessable income will be determined by reference to sales of stock- and purchases of stock during the year and not. to any* rise or fall in the value of stock held during that period. It is provided that income received front' a source elsewhere within the Empire and on which tax has been paid in that country is to be used to affect the rate in the same way as are dividends from New Zealand companies. At present income received by a taxpayer in New Zealand irom another Empire country is not taxable in tho Dominion if it has borne tax in the .country of origin, nor is this income used to affect the late of v«x payable. This means that exempt income derived from New Zealand, such as dividends, is usvi to increase the rate of tax but an advantage is conferred upon persons who have invested their money out of sow Zealand. A clause corrects Ibis position. Company Taxation. Another clause amends provisions enabling losses to ho carried forward by providing, that a change in shareholdings consequent on the death of the principal shareholder is not to he taken into account. Under the present law a company which suffers loss in one income year is precluded from carrying that loss forward and setting it off against profits in the subsequent year if shareholdings in the company have meanwhile changed by more than 25 per cent. Cases have arisen where this has happened because if the death of one o ftlie principal

shareholders. The section in the principal act by which two- co-relatod companies can be assessed as one company is amended to meet the position of chain companies, and there is a new clause defining the circumstances in which shareholders are deemed to be in control of a company. The definition of dividends is extended to bring it into line with that contained in the Social Security Act. There is a clause designed to assess the principal shareholders in private companies as though they were trading in partnership. At present it is possible for persons' who are. in effect, partners to form private companies and thereby divide the income derived by them into two portions and so secure a lower rate of tax. The Commissioner of Taxes' is empowered to disallow such portion of the payments by proprietary companies ,to shareholders or relatives as lie considers is in excess of the value of the services rendered. Cases have occurred ol private companies paying to directors and relatives of directors or shareholders sums in excess of the value of the services given by those persons to the company. The effect of this is to reduce the total income of the company and so reduce the rate of tax payable by it. In (Vases where it appears to the Commissioner that a business controlled by non-residents is not returning the trup amount of prolit he may mate an arbitrary assessment of the tax to be payable by such companies, Considering Objections. The Bill provides for the appointment of a special committee to make recommendations to the Minister ol Finance in respect- of objections to arbitrary assessment lodged by taxpayers. The committee is to consist of the Commissioner of Taxes, the Solicitor-General and the Secretary to the Treasury. Several clauses amend the law relating to the assessment of income derived by trustees. Traders in the Cook Islands who previously paid no income tax whatever are brought within the scope of the income tax laws. An important clause ’ provides that land tax levied on land used in the production of assessable income may be claimed as a deduction for taxation purposes. The present law prevents a taxpayer from deducting from his assessable income, any income tax, land tax or employment charge paid by him. The deduction of income tax or Social Security charge is still precluded. The Bill was read a first time.