LAND TAXATION

Dominion, Volume 23, Issue 45, 16 November 1929, Page 12

LAND TAXATION

HOW THE FARMER FARES EFFECT OF THE SUPER-TAX PAYMENTS ON INCOME With demands and assessments lor me payment of taxation now in course of distribution, many land-owners ail ec ted by the recent increases have already had the full effect of these brought home to them. In accordance with the Government’s proposals, which were carried through the House with the help of the Labour Party, land tax and super tax are levied on all properties exceeding an unimproved value of £14,000. Income tax is also assessed, and payment made of whichever sum is the greater.

When the Taxation Commission reported several years ago it recommended that income tax should be substituted for land tax, and it is generally claimed that income tax on profits earned, as paid by other sections of the community, is the fairer tax for land-, owners, despite the Department s argument that the income tax assessment for farmers is difficult and costly. Under the present system of taxation, however, many farmers will be hit both ways. They will apparently be liable for income tax in a prosperous year, while in a bad one they will be called upon to pay land tax, in some cases very much increased, although.no profits might have been earned. It has been contended that there are farmers in New Zealand who have escaped their fair share of taxation in the past by the operation of the land tax. On the other hand it has been stated that there are hundreds on the land, with heavy mortgages on their properties, who have paid taxation under the land tax out of all proportion to their income. Resentment is said to be felt by the first class at the greatlyincreased amount of their demands, and while the effect of the land tax was thought to operate* inequitably on farmers in the second class, it is now described as infinitely more unfair and unjust under the new method of assessment for taxation. Investment of £40,000.

The effect of the new proposals can best be realised by the following examples, which have been drawn up by an accountant, who has also had a long experience of taxation matters. The results obtained under the system of land and income tax in New'Zealand prior to the new proposals coming into force, find the changes that their adoption brought about are clearly shown. Let it be assumed that two farmers, A and B, are each carrying on similar farming operations requiring a capital investment of, say, £40,000. The undertakings consist of: — £ Land, unimproved value 20,000 Improvements 10 - UW Total value of land 3ffooo Stock, plant, and working expenses 10,000 Total capital employed 40,000 Both farmers are married and each has four children, and they each work their farms themselves and make a return of 8 per cent, on the capital invested, for which taxation has to be deducted. In addition'they make a return of £4OO a year each for their own work. Farmer A owes nothing on his property and has in addition £SOOO lent out on farm mortgages at 61 per cent. Farmer B has no assets outside of his farm, and has .a first mortgage on his farm of £20.000 at 6i per cent, a second mortgage of £5OOO at 7 per cent, and a stock mortgage of £5OOO against his £lO,OOO worth of stock at 7 per cent. Table of Incomes. Their respective incomes will work

It will be seen from/the above table that both men pay exactly the same amount of taxation. Although one has an income of £4120 and the other only £l6OO, each of them has to pay £154 7s. 6d. in land tax, and with super tax added they would each pay £257 ss. lOd. Payments on Income Tax. If income tax were charged on present rates these two farmers would pay as follows, assuming that they both took advantage of life insurance allow-

67 17 •, These latter tables show that A, who has a large income, has been let off £284 9s. lid. of the tax he is entitled . to pay, and B, who has ’a smaller In-

come, has been charged £B6 10s. 4d. too much. Amounts of Super Tax. Under the recent increases both farmers will have super tax added to their land tax, while they will also have to make returns of income, and pay land tax or income tax —whichever is the greater. A’s tax on land, with the super tax, will be £257 ss. lOd. His income tax, however, will be £438 17s. 5d., and this sum being the larger > is the taxation he will have to pay. With B his income tax is £67 17s. 2d., but as in his case the land tax, with super tax, £257 ss. 10d., is the larger, the latter sum will be Ills contribution in taxation. The following tables, which are made up on exactly the same principle as the foregoing examples, show the amount of land tax and income tax in cases where the unimproved value of land is £30.000. £50,000, £lOO.OOO, and £140.000 (shillings and pence are omitted, and the amount payable is marked with a

The above assessments of super tax are all based on the Government’s original proposal to assess it on unimproved values in excess of £12.500. The amount was subsequently changed to £14,000. but the reduction which it would bring about in the sums men tioned above would be practically negligible.

out as follows: — FARMER A. X* s. d. Income from farm, £40,000 at 8 3200 0 0 Return for Ills own work 400 0 0 Interest on €8000, nt 6J per cent 520 0 0 Total income ... 4120 0 0 Less taxation — Land tax on £20,000 154 7 6 Income tax on £520 — £_ Less exemptions ........ 265 Life insurance 78 Four children 200 Net income after deduction of taxation 3965 6 Total taxation on income of £4120 ■ ■■■■ 154 7 6 FARMER B. £ s. d Income from farm, £40,000, at 8 per cent 3200 0 0 Return for his own work 400 0 0 3600 0 0 £ Less first mortgage interest on £20,000 at 6$ per cent. 1300 Second mortgage interest on £5000 at 7 per cent. 350 Stock mortgage interest on £5000. at 7 per cent. .. 350 Total income .1600 1 0 0 Less taxation— Land tax on £20,000 154 7 8 Income tax Net income after deduction of taxation 1445 12 6 Total taxation on income of £1600 154 7 6

nnces:— FARMER A. ■ s d. Earned income Interest on investments 3600 520 0 0 0 0 Total 4120 0 0 £ Tax exemptions— Insurance, 15 per cent. of £3600 .1. 540 Children ... 200 — 740 0 0 Income tax on £3380 would be.. I (ill 3 2 Less allowance account earned income 27 5 9 438 17 5 FARMER B. e s. d. Net earned income 1600 0 0 Tax exemptions— Insurance ... 240 Children ... 200 440 0 0 Income tax on £11(50 would bp 75 8 0 Less 10 per cent, account earned Income 7 10 10

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