"A BOMBSHELL."

Auckland Star, Volume LXIX, Issue 207, 2 September 1938, Page 9

"A BOMBSHELL."

BUSINESS VIEW. FUNDS MAY DRY UP. BAR TO EXPANSION. Extra company taxation of 1/ in the £ is regarded by business men in the city generally as "a bombshell." They were diffident this morning in expressing definite opinion until they were aware of the full provisions of the amendment, but the position, as it was generally expressed, was set out by Dr. E. P. Neale, secretary of the Auckland Chamber of Commerce, as follows:— "The taxation, in effect, is a taxation on the undistributed profits of companies. As such it ia liable to dry up the funds available for the expansion of company activities." It was difficult to base any analysis of the affects of the new charge on the brief original report of the proposals, said Dr. 11. A. Cunningham, an expert on taxation. The full meaning of the new company tax could only be assessed when the full wording of the amendment to the Social Security Bill was available for study. Judging only on what had been published so far, it appeared that companies would pay an extra 1/ in the £ on all profits that could be regarded as "chargeable income." A good deal depended on the definition of "chargeable income." Profits placed on reserve as well as divided in dividends to shareholders would be liable. It was a. full extra shilling because companies did not at present pay the Sd in the £ cmplovment tax.

"In Worse Position." "Companies are to l>e liable for 1/ in the £ on chargeable income which presumably will be the same as their taxable income for income tax purposes." he said. "They will thus lie taxed on their profits before allowing any transfer to reserves. The assessable income of certain companies such as mining and banking companies is arrived at in a more or less arbitrary manner for income tax, and these companies are to be exempted from the special taxation. Their shareholders will pay the 1/ in the £ on the dividends they receive. "In the case of other companies which are subject to the tax the dividends will not be assessable as income of the shareholders. There are, however, two provisions which, if "they are correctly set out in the report, seem to be open to comment. While dividends paid in cash are not taxable to the shareholder, the dividends distributed in the form of shares or debentures are to be taxed. "Distributions of bonus shares are really capital and are treated as such in England, although the law lias been altered in New Zealand. They, of course, give the shareholder nothing which he did not have before the so-called distribution was made. The two shares which he has after the distribution entitle him to precisely the same interest in the capital and the profits of the companv as he was entitled to by the holding of one share. Yet apparently under "the new provision the shareholder who receives bonus shares is in a worse position than the one who receives a dividend in cash.

No Deduction for Losses.

The other provision is that if a company is liquidated and the shareholders receive more than tliev paid mi, the excess amount will be liable to tax. There is apparently no provision under which the shareholder can deduct his loss in cases where the shares return less than the amount he has paid up. Take the case of a man who has investments in two companies which have gone into liquidation. In the case of ? , ,n„ e °T^ a . T,y W ' ] ! ,Vh a '«Hnre he loses 0 of his capital. In the case of the other company he makes £50. The net result is that he has lost £50. yet lie is.to lie assessed on the £50 profit without any deduction for the £100 loss. If that is the real effect it k an extraordinary position. If profits are charged losses should be deducted." ~