LAND AND INCOME TAX.

Auckland Star, Volume XLIX, Issue 46, 22 February 1918, Page 2

LAND AND INCOME TAX.

HOW IT AFFECTS FARMEKS. (From Our Own Correspondent.) MORRINSVILLOE, Thursday. A very interesting and instructive address on the above subject of the land and income tax ac it affects farmers waa given at the Farmers' Union meeting at llorrinsville by Mr. E. McGregor, A.A.A.X.Z., solicitor. There were, said Mr. McGregor, two distinct methods of levying taxation — the tax on capital and the tax on income earners. It had always been adopted in New Zealand that the income tax was for general purposes, the tax on capital for the holders of real estate. The income tax touched the class who were earning large salaries with cowparativety little capital; the position of the farming community was the opposite. The farmer, unfortunately, rar,.vy if ever, kept proper books of accounts, and it was practically impossible for him to tell at the end of the year what the true nett profit was on the working of his farm. Even if he kept books, it would be doubtful if any inspector of the income tax office could understand them. The farmer on the land almost invariably has the bulk of his capital invested in the land which he owned. Consequently it was easier to tax him on his capital than on bis income. That wae the position up to 1916. Income derived from business >vac subject to income tax, but income derived from land was, speaking generally, exempt, and in lien of this the capital invested in the land was subject to taxation. The method of procedure was, on the whole, equitable. It yielded the maximum amount of revenue with the minimum amount of trouble, both for the taxpayers and the tax-collecting department. In 1916 an alteration took place. Aj income tax was demanded on income derived from land, in addlt'on to a capital tax on the unimproved value of the land. The revenue was secured for 1916, but since moro revenue was required. Sir Joseph Ward had not been called a wizard of finance for nothing- In 1915 a tax on capital, in 1910 a tax on income and capital, and the farmers had thought he had reached the limit; but in 1917 you had a tax on the capital you Oivn, plue a tax on the income you earned, with the addition of a tax on tb'j money

you owe. THE LAND TAX.

The speaker then explained the provisions of the Land Tax. The outstanding feature of the Act wae that except in certain case no deduction was made for mortgages" on the land. In the case of a person having an unencumbered property, or one subject to a mortgage of less "than £500, a deduction of £500 may be made in ascertaining the taxable value if the value of the unimproved land did not exceed £1,500. If the laud was worth over £1,500, the £500 allowance was reduced by £1 for every £2 of the excess, so as to have no deduction when the value amounts to or exceeds £2,500. For example, on a property worth £1,600 the deduction would be £450, and on a property worth £2,000 the deduction would be £250. When land is subject to a mortgage, and the value of the land does not exceed £3,000, a deduction may be made of the amount of the mortgage up to £1,500. When the value exceeds £3,000, the deductible amount diminshes by £1 for every -£2 of the excess, so xhat no de- | duction can be made when the value of the property ia £0.000 or ovpr. His objection to the Act was that a man was no longer taxed on the wealth or capital which he possessed. He mentioned a case where three brothers, with commendable spirit and energy, but with very little capital, took up land as tenants in common. The unimproved value was £6650. The mortgage on the land totalled over £0000, yet no deduction was allowed for taxation purposes, and the land tax, amounting to £48 18/-, had to be paid. Had the brothers cut up their farm and farmed one-third each the land tax would not have been chargeable. The speaker pointed out that the word mortgage in the Act referred to registered mortgages only, consequently no deduction could be made for moneys owing on unregistered mortgages. I'npaid purchase money, however, was treated as a mortgage. The Act provided for special exemption where the taxpayer was a widow with dependent children, and the Commissioner was also given power to allow alternative exemption where the taxpayer's income from all sources did not exceed £200, and where the , provisions of the Act would otherwise cause undue hardship. The Act provides that where persons hold land as joint tenants, or as tenants in common, they shall, for the purposes of the Act, be deemed to be a single owner. One section of the Act adversely commented on by the speaker was that which provides that the Commissioner may decide that the vendor may still be declared the owner of property where less than 15 per cent of the purchase consideration has been paid. He pointed out that when 15 per cent of the purchase money has been paid the purchaser is treated as absolute owner, and compelled to pay land tax on the full unimproved value. Other clauses in the Act were briefly touched upon. THE INCOME TAX. The income tax was then dealt with', the speaker pointing out that since farmers had to pay income tax they must keep proper books. The responsibility was placed on the taxpayer. If proper' books were not kept the Commissioner had' power to arbitrarily assess the income tax payable, and he would sec that the amount is on his side of the fence. Replying to a question as to where he will get his figures, the speaker said that he would guess them. He advised the farmers to take up a short bookkeeping course. Dealing with the amendments in the new Act, he said the principal alteration affecting farmers was that the capital basis of the exemption in respect of land had been changed from capital to unimproved value. Last year a 5 per cent deduction of the capital value was allowed; this year it was 5 per cent on the uni.nproved value. Last year the exemption was £300; this year it is the same amount, but it diminishes by £ for £ over £600, ceasing altogether when the income is £900 or over. The new Act favoured the man with the big family. TWire was no limitation to the number of children, and the taxpayer could claim exemption of £25 for every child under the ago of 16. Depreciation at 5 per cent was allowed on all buildings; a farmer was allowed to charge up maintenance of fences as an expense. Replying to questions, he said that if a fanner sold his farm and the stock realised (say) £500 more than the standard valuation, he would, in his opinion, have to pay income tax; in making up his income tax farm stock was included. A hearty vote of thanks was accorded the lecturer.