RETROSPECTIVE.

Auckland Star, Volume LXIX, Issue 208, 3 September 1938, Page 7

RETROSPECTIVE.

NEW COMPANY TAX.

FOR SOCIAL SECURITY.

WHAT SHAREHOLDERS PAT.

Examination of the full provisions of the proposed amendments to the Social Security Bill imposing an extra tax of 1/ in the £ on company profits, reveals that the tax is payable on profits earned since March 31, 1938, and in some instances on profits that were earned prior to that date. Another important aspect is that for the year ending March 31, 1038, shareholders will pay the tax; companies will pay the tax for that period on the excess of profit over the amount of the interim dividends. Adding to his comments of yesterday, which were based merely on the summarised report of the proposed amendments, Dr. H. A. Cunningham, an authority on taxation, states: "The effect will be that tax will be paid on all capital profits of the company whenever they are distributed to shareholders. The provision operates only the one way—in favour of the Crown. No allowance is to be made for any losses on capital assets. The injustice of this is fairly obvious. "Manifest Injustices." "The taxation on companies in New Zealand is already extraordinarily high. A large company usually pays a very substantial sum in graduated land tax. Its income tax, however, is calculated not only on the income which is available to its shareholders, but also on that part which the Crown has already taken as land tax. "This new tax, including as it does certain manifest injustices, will be a very serious added burden to many companies, and will no doubt further discourage any investments in this country. This new section appears to indicate that the Government lias no intention of including among its promised amendments to income tax law any provision for changing the incidence of taxation from companies to individuals. "The Crown will receive a shilling in the pound ou undistributed profits, whether these are transferred to reserves or remain in the profit and loss account," said Dr. Cunningham after an examination of the full wording of the amendments. "It will further receive tax on non-deductible items, which although not allowed as deductions for tax purposes, reduce the amounts that can be distributed to the shareholders. "Companies whose assessable income is arrived at on a different basis from that of ordinary companies, are exempt from this tax. Those are companies engaged in life insurance, banking, goldmining, scheelite mining and petroleum mining. The taxable incomes of these companies |or income tax purposes is arrived at in a more or less arbitrary manner, which in some cases bears little relation to their actual profits. The dividends of these companies will be taxed in the hands of the shareholders. Provision is also made for the exemption of other classes of companies by Order-in-Council. Elaborate Sections. "The proposal to impose the special tax on incomes of companies is expressed in two elaborate sections, the meaning of which can be determined only by careful examination. The general effect is that the tax will be levied upon the total income derived by companies after March 31, 1938, and upon any income derived prior to that date if it is distributed in any manner to shareholders. "In respect of income derived by a company during the year ended March 31, 1938, the amending clause provides that shareholders will pay the tax on dividends paid during the year out of the income of that year; the company will pay the tax on the excess of its income over the amount of interim dividends. "Dividends paid after March 31, 1939, are exempt from the tax in the hands of shareholders. An exhaustive definition of the term dividends has the effect of applying it to profits distributed to shareholders in any form, such as bonus shares of the surplus above paid-up capital in the event of a winding up. The tax on all such profits will be paid by the company. "The final sub-section is designed to impose the tax on any profits earned by a company prior to April 1. 1938, that niav be distributed after March 31, 1939."