INCOME TAX ON ESTATE

Press, Volume LXXIV, Issue 22431, 18 June 1938, Page 4

INCOME TAX ON ESTATE

LOAN TO PAY DEATH DUTIES COURT OF APPEAL REVERSES DECISION (PEESS ASSOCIATION TELEOBA.iI.) WELLINGTON, June 17, The Appeal Court has delivered judgment in the case of the Public Trustee (as executor of the Robert Hannah estate) versus the Commissioner of Taxes. The question considered by the Court was whether the interest payable on moneys borrowed by the Hannah estate to pay death duties was a deductable item in arriving at the amount of income assessable for tax. " The Court held that the interest on so much of the borrowed money as was used in producing assessable income is deductable. In a lengthy judgment, the Chief Justice (the Rt. Hon. Sir Michael Myers) expressed the view that subsection (2) of section 80 of the Land and Income Tax Act, 1923, should read as being subject to concessions made by paragraphs (H) and other paragraphs of sub-section (1). His Honour.said: “Here the death duties were not a voluntary debt,* They were a debt of the estate which was charged upon the estate and which the trustee was compelled, to pay. The Death Duties Act authorises him to borrow money upon the security of the assets of the estate in order to enable him to pay duty. “It was not therefore a voluntary expense incurred by the estate as the Privy Council held payment in Ward and Company’s case to have been. Here also money was borrowed in order to prevent a reduction of income, The borrowed money was not employed, to quote the words of Isaacs J. for purposes alien to, or independent of, property, and to use the language of Knox, C. J., the loan here was instrumental in, or conducive to, the production of assessable income. Used to Maintain Income “It cannot be said that the debt was incurred for a purpose wholly unconnected with the production of assessable income of the estate. On the contrary, it was Incurred for the very purpose of maintaining the income of the estate and preventing its reduction.”

For the reasons stated in his judgment, his Honour said he found himself unable to agree with the judgment of the Court below. Inasmuch as the money borrowed was employed in the production of both assessable and non-assessable income, the answer he would make to the question asked was that as a matter of law part of the interest was deductable under paragraph 8, section 80, sub-section (I).

The quantum of such deduction was a matter of fact and was for the commissioner to decide. No difficulty arose in the present case because the parties agreed as to a basis of deduction.

Mr justice Blair concurred in the Judgment of the Chief Justice, and Mr Justice CaUan wrote a separate judgment agreeing with it. Mr Justice Northcroft, however, dissented, expressing the opinion that the exemption claimed under sub-section (1) was not available. Costs on the lowest scale were allowed the appellant.