FARMERS' INCOME TAX.

Press, Volume LXVI, Issue 19851, 12 February 1930, Page 10

FARMERS' INCOME TAX.

BASIS OF ASSESSMENT. DEPARTMENT'S PROCEDURE QUESTIONED. A matter of considerable importance and concern to farmers in respect of the 1 income tax payable by some of them is raised in the following letter:— TO THE BDITOB Of THK PBESS. Sir, —When this much-discussed question was before Parliament, it was generally understood that the object of tho new legislation was to impose a special land tax or income tax, whichever was the greater, upon farmers owning properties valued at more than £14,000 unimproved value. Now many farmers are receiving an unpleasant surprise, and it looks as though tho Government were receiving a windfall that Parliament did not intend. Income tax assessment notices have now been issued, in which the income tax is arrived at by adding the income from farming operations to any other assessable income a farmer may possess, and charging tax on the total income (subject, however, to the usual exemptions) and an allowance, called land tax, equivalent to the proportion of income tax which the income derived from farming bears to the total assessable income. I have come rcross numerous cases in which fanners are called upon to pay from £2o to £44 over and above what they should pay, if they had been assessed solely in respect of income derived from sources other than farming. In order to make the position clear, I will quote figures in connexion with one case which has come under my notice. It is as follows: B «. d. Income, as returned, from interest 483 18 0 Farming incoma ... ... 1,820 18 11 2,304 16 11 Less children allowance and insurance premiums 150 14 8 Leaving a total taxable income of 2,154 2 S Tax thereon 214 10 11 Leys deduction in respect of earned income 16 12 8 197 18 6 Less also land tax equivalent to proportion of income tax on farming income ] (570-2150ths of £197 18s 3d ... 153 8 10

Leaving the amount of tax payable ... 44 9 5 In addition to the above income tax, the taxpayer has paid land tax amounting to £196 6s, and has been assessed for special land tax amounting tn £l4O 35.9 d. Before the Act was altered, an assessment h'tice was issued for £1 8s 7d for income tax. Surely it was never intended that his income tax should bo increased from that amount to £44 9s 5d by reason of the fact of the farming income being added to his assessable income.—Yours, etc., JAM*RS H. WILLIAMS. February Bth, 1930. Some Opinions. Opinions regarding the manner in which farmers' income tax is being assessed were sought from various authorities by a representative of Ttne Prisss. It will probably assist ih an understanding of the matter if the section in the Land and Incomo Tax Amendment Act, 1929, is quoted. It read« as follows:

'l3 (1) From the amount of income tar assessed in any year in respect of income derived from land in accordance! with the last preceding Section, there shall be» dedttctea ah amount equal to the amount of land tat payable by the taxpayer for the same year in respect of the same land, and the residue (if any) after the making of such deduction) shall be the amount of incttme tax for that year payable by the taxpayer in respect of the income derived from that land. "(2) Where the land tax payable in respect of any land is payable by two or more taxpayers jdintly, the Commissioner shall, for the purposes of this Section, apportion the amount of such tax among the several taxpayers..,.

; "(3) The special exemption provided for in section eighty-three of the principal Act Shall have ho application in any case in which the taxpayer is entitled, in accordance with the foregoing provisions of. this section,to a deduction from income tax being made in respect df the amount of land tiix payable by him."

Section 11 (to which reference is made above) sets -out what the assessable ineome of any person shall include". A Similar Case. A case* on somewhat similar lines to that quoted by Mr Williams, was cited by one of the principals of a leading legal firm. The taxpayer made a noniinal profit of £6O from his farming operations; but when he had, paid land tax, and super land tax, tbtalliiig £ 186 2s sd, he showed a iosS of £IJS6 2s sd. Instead of deducting this lbss frbrh his income earned from other sources than farming, the £6O nominal profit from farming was added to his income from sdurces other than farming, and after certain deductions, he was called upon to pay £3 8s 7d extra. This ambtiht, he told the reporter, did not concern him so much as the iniquitous basis oh which it had been assessed. Payment of Income Tax on Land Tax. "It was generally understobd," Baid Mr W. H. Nicholson, secretary of the Canterbury Sheepowners' Union, "that the new system Of taxation was to ensure that those persons owning large areas of land should not be called upon to pay both income tax and land tax, but that, while this was so, no person whose income was considerably above that of his land tax should escape the obligation of paying his fair share of the cost bf Government." But it was never intended at any time, to judge by the debates in the Housb, that a farmer above the Umit set should have to pay income tax tin his land tax. The inclusion Of. income tax on land tax often puts the taxpayer into a higher graduated rate for income tax. In feality> the taxpayer has hot made the income shown because land tax has not been allowed. Thus, the land tax in many cases is far in excess of what tho ordinary taxpayer would pay in income tax. The consequence is that on incomes from £ISOO to £2OOO many farmers, on their combined incomes, are paying up to 4s and 5s in the pound-—d rate higher than the maximum (4s 6d) under the graduated income tax. Many farmers are paying out in land tax many times more than they would have to pay if assessed for income tax only. Surely this is the surest way of depopulating bur primary producing lands and to prevent tEe extehsibn of settlement. Contrary to the Legislature's Intention. Mr A. E. G. Lyttle, secretary of the North Canterbury Division of the Farmers' Union, said that while not pbsing as an authority it appeared to him that the assessment given in Mr Williams's letter wu unjust, It Memed «lear that

the Commissioner of Taxes had a perfect right to add income from other sources than farming to income from farming in order to arrive at the income tax payable, but this, operated unfairly, and Mr Lyttle believed that..it was contrary to the intention of "the Legislature. Referring to the figures supplied by Mr Williams,. lie remarked that the amountj £44 9s sd, sho*ra as the amount of the tax payable really represented the tax bti the income returned from interest,,and was absurdly

. high.. They were, in fact, charging £44 > 9s 5d oh £483 18s. They had proved, by lumping together the.income from interest and the income from farming, that the income tax payable .was £197 18a 6d; but the next "less also land tax equivalent to proportion of income tax oh farming income, 16702150ths of £197 18s 3d, £153 8s 10d," seemed to be entirely superfluous, seeing that the Commissioner already was in possession of the fact that £196 6s had been paid in land tax; In the absence of a satisfactory explanatibn from the it appeared as if the Department were attempting to exact more from the taxpayer than it had i right to exact. The £153 8s lOd did riot seem to him to be described rightly as "land tax equivalent"} it should be "the income tax proportion applicable to the farming income." All that had been absolutely necessary to do was to deduct from £197 18s 3d the £196 6s, representing land tax; which left £1 12s 3d. which approximated to the £ 1 8s 7d at which the taxpayer was assessed before the passing of the Land and Income Tax Amendment Actj 1929. In other words; all that the taxpayer should be called upon to pay was the difference between the land tax and the income tax, which is £1 12s 3d; From a layman's point of viewj consideration of (Section 12 of the Amendment Act appeared to indicate that the intention was that it should apply to taxpayers whose only source of income was from the land. The calculation already referred to ("Less also land tax equivalent," etc.) appeared to be the Departmental method of giving effect to Section 12. The taxpayer should then have been, assessed separately in respect of the £483 18s of income f rbm other sourees than farming. The taxes paid and payable by the taxpayer whose Case is cited by Mr' Williams is equal to 3s 7d in the pound. If the taxpayer had been assessed for income tax alone on the taxable amount of £2154 2s 3d, he Would have been 1 called on to pay £214 19s 2d instead of £390 7s sd—a difference of £175 8s 3d. An accountant who does a considerable amount of land and income tax work toia th , e ro j, orter that almost diyly he was receiving from the Department corrections of assessments sent out by it.