Businessmen Asked To Justify Salaries

Press, Volume XCVIII, Issue 29002, 17 September 1959, Page 14

Businessmen Asked To Justify Salaries

“The Press” Special Service WELLINGTON, September 16. Many company directors are being asked by the Commissioner of Inland Revenue to justify the salary that they are being paid. The Commissioner, who has arbitrary powers to determine what a director shall be paid, has asked hundreds of businessmen questions about their salaries.

“It seems to stem from a philosophy that 'no man shall be worth more than a certain amount’,” said a taxation consultant today.

There is no right of appeal against the Commissioner’s rulings.

Chartered accountants consulted today suggest that at least there should be a board of appeal, such as exists in Australia.

In letters to directors or their accountants, the commissioner has asked them to supply;— Full details and exact nature of duties. Actual time each week devoted to the company’s business. Qualifications, age and experience. The amount paid by way of extra salary each pay period during the year ended December 31, 1958. The amount of extra salary or bonus paid for that year, the date on which the payments

were authorised, and the basis on which they were calculated.

A copy of a resolution authorising the payment.

Specific reasons why the increased remuneration for the year ended March 31, 1959, was decided, and the date of such decision.

Any other evidence the taxpayer may wish to produce to support the claim. According to some accountants it would seem that a sliding scale is being applied by department officers. Examples were given where a salary of £3250 was reduced to £2OOO, one of £2500 to £1750, and one of £2OOO to £l5OO.

If a businessman who wishes to pay himself £3OOO a year as a salary is allowed only £l5OO by the commissioner, he can, of course, pay himself an additional £l5OO as a dividend. Under the new tax laws, however, a dividend is subject not only to company profit tax, but also to a dividend tax which is paid by the receiver. In this way, the department collects more tax than if a straight salary is allowed. [Section 139 of the Land and Income Tax Act, 1954, under which the commissioner is oper-ating-states:

“Where any sum paid or credited by a proprietary company being or purporting to be remuneration for services rendered by any person who is a shareholder or director of the company or a relative of any such shareholder or director, exceeds such amount as in the opinion of the commissioner is reasonable, the amount of the excess shall not be an allowable deduction in calculating the assessable income of the company, and shall, for the purposes of this act be deemed to be a dividend paid by the company to that person and received by him as a shareholder of the company.]