Govt proposes easing tax ‘clawback’ law

Press, 13 July 1984, Page 1

Govt proposes easing tax ‘clawback’ law

By

MICHAEL HANNAH

in Wellington

The Government yesterday proposed easing the controversial 1982 income tax “clawback” law, which removed tax concessions on interest and development expenditure for land sold within 10 years. The 1982 law was also instrumental in the creation of the New Zealand Party, accounting for much of the party’s support in the Bay of Plenty, where kiwifruit developers said their investment returns had been seriously reduced by the law. Credit for the proposed amendment has been claimed by a senior Government backbencher, Mr Bruce Townshend, who represents the Bay of Plenty electorate of Kaimai.

He denied yesterday that the proposal was intended to appeal to New Zealand Party supporters, saying that it came from a proposal he put to the Prime Minister, Sir Robert Muldoon, “about two months ago.”

The move depends on the Government’s being returned to office at the General Election tomorrow.

Under the proposed amendment, announced yesterday by the Minister in charge of the Inland Revenue Department, Mr Falloon, the 10-year period for total recovery of interest and development expenditure claimed in income tax returns is halved to five years. Thereafter, the tax recovery is reduced on a sliding scale to 50 per cent on land sold in nine to 10 years. Mr Falloon said the move was justified because infla-

tion had fallen, reducing the inflationary effects of converting income tax into capital gains through the sale of property. A spokesman for the Inland Revenue Department confirmed that land value increases had slowed since the Income Tax Amendment Act (No. 2) was passed in 1982. The measure announced yesterday is believed to have been intended for this year’s Budget, and would have been included in the annual Income Tax Amendment Bill. Mr Falloon announced it in a statement in Wellington minutes before he told a business audience in Levin, part of the marginal electorate of Horowhenua, which has also seen kiwifruit development in recent years. Mr Townshend told “The Press” that he had made representations to Sir Robert ever since the 1982 law was passed, because he regarded that measure as an “undue restriction and penalty” on normal land sales.

He conceded that he had also been credited with the 1982 law, but said that it had gone further than he had intended.

He had made his last submission to Sir Robert “about two months ago — well before the election.” Sir Robert had replied that he was considering the proposal and Mr Townshend said he believed it would have been considered for inclusion in the Budget.

It is thought that approval for the measure came from Sir Robert while he was in Invercargill on Tuesday, after he had received a report from the Inland Revenue Department.

Mr Townshend said that the proposal “stood on its merits.”

“Those who have gone to the New Zealand Party will probably stay there and make their protest,” he said.

Before 1982, farm development expenditure claimed on land was recovered if the property, was sold within five yea*p The

1982 law extended this period to 10 years and included interest claimed in that period.

The proposed amendment returns total recovery to a five-year period. Tax recovery on land sold within five to 10 years would be: five to six years, 90 per cent; six to seven years, 80 per cent; seven to eight years, 70 per cent; eight to nine years, 60 per cent; nine to 10 years, 50 per cent. Mr Falloon said the sliding scale was justified because it benefited taxpayers who had “compelling” reasons to sell their land, particularly near the end of

a 10-year period of ownership.

Such taxpayers would not be subject to a 100 per cent recovery because of a “matter of a few months, weeks, or even days,” Mr Falloon said. The measure would also overcome the possible inequity where a taxpayer who kept land for nine years was treated in principle the same as a taxpayer who retained land for only six months. The amendment would apply to all sales of land from the present tax year, beginning April 1, 1984, he