INEXPEDIENT TAXATION.

Auckland Star, Volume LII, Issue 159, 6 July 1921, Page 4

INEXPEDIENT TAXATION.

Students of New Zealand's system of company taxation, which may be described as extensive and peculiar, know that in many cases the maximum rate i-s in practice exceeded; that it has been and will be nearer 10/ in the pound than the 7/6 and 8/9 prescribed by the Act., One reason for this is that certain deduc- j tions which companies would make in j respect to their own balance sheets are , not allowed by the Department. Among , these are payments to funds to benefit, employees. The point has just been the j ■ subject of an important judgment by the j. Court of Appeal, which was asked by a j large Xcw Zealand business house to i reverse the decision of the Lower Court' ■ and cay that moneys contributed to j pension and benevolent funds for its employees, amounting to £10,000, should i not be assessed for income tax purposes. , By two judges to one —Mr. Justice Sim and Sir John Salmond against Mr. Justice ■ Stringer—the Appeal Court decided in; ( favour of the Commissioner of Taxes,! but did so with regret. "The main object . of the appellant" company's excellent scheme appears to be to promote dili- j gence and efficiency on the part of the: company's servants," said the president , of the Court. "Such a scheme is worthy of every encouragement in these days, when "going slow,' with its resulting in- ' efficiency and dishonesty, is deliberately ' advocated and practised. It is desirable, ' therefore, that the contributions made ' by the company to the funds in ques- ; tion sliould be held, if possible, to be . exempt from taxation as part of the com- . pany'e income. But, although I would ] have been glad to arrive at that result, j I have found it impossible to escape from the conclusion that the sum in question 1 in this case is part of the assessable in- ' come of the company within the meaning of section 85 of the Land and Income' ] Tax Act, 1916." He held that the contri-1 ] ■butioKs were part of the profits of ; the company, and that therefore though i they were part of rhe remuneration of. i the company's servants, they were tax-|f able. Sir John Salmond agreed, on the < principle "that the amount of income tax i payable on the profits of a company's l business did not in any way depend on 11 the manner in which these profits were > distributed or used." He added that the 1 law might be defective, in that it discouraged profit-snaring, but this was a matter for the Legislature. Mr. Justice j Stringer dissented, holding that the con-1 tributions to the funds were not profits i from the business standpoint, a view that we should think will be shared by business men. The company haß done a public service in bringing the case, which draws attention to a provision in the law that discourages employers from introducing profit-sharing schemes or establishing superannuation funds, and this, at a time when capital is being urged to I b#> more liberal towards labour. It places profits transferred to funds forj the benefit of employees on the same footing as profits that go to dividends. In one case the recipient is a member of the taxed concern, and in the other he is not, but the shareholders, in addition to providing this money for non-mem- < bers, have to pay taxation on it. The defect is one of many that should receive the early attention of the Government.