TAX ADJUSTMENT

Dominion, Volume 38, Issue 268, 10 August 1945, Page 8

TAX ADJUSTMENT

Special Depreciation Allowance COST OF NEW PLANT AND BUILDINGS Royalties And Research Provision for a special depreciation allowance of 20 per ceiit. of the cost of new plant and buildings spread over a period of live years, and for the allowance as a deduction in assessing income tax the cost of royalties, research and patent rights, was announced by the Minister of Finance, Mr. NASH, in his Budget speech. He said the incidence of taxation in general was under examination and it was proposed during the year to take' steps to remove any proved injustices or anomalies. War taxation pressed heavily upon all sections of the community, and it was recognized that it left little to cover the risks inseparable from undertaking new ventures. The time had not yet come for a general review of taxation, for we still had heavy costs of war and rehabilitation to meet. Nevertheless, this was the time when plans and preliminary arrangements should be made for expanding production as soon, as manpower and materials were available. Those contemplating new industrial activities were naturally wondering what, would be their post-war taxation position. To assist ami encourage them the Government proposed to make certain adjustments in the basis of taxation to first become effective in respect of the income earned during next financial year.’ In connexion with the decision to grant a special rate of depreciation on buildings and plant, the following show the effect of a special allowance of .20 per cent, spread over a period of five years (d.v. means diminishing value, o.e. original cost): —

The ordinary depreciation rate on plant is 71 per cent, on the diminishing value, while the ordinary depreciation rate on buildings is:—l per cent, in respect of reinforced concrete; 14 per cent, in respect of brick, stone, or concrete walls; 24 per cent, in respect of wooden frame. In the case of buildings, the depreciation is calculated on the original cost. Diminishing Value. "The table shows that the normal rate of 74 per cent, diminishing value . has been allowed on plant, with an additional special depreciation of £4OOO in each of live years (that is, a total of £20.000, being 20 per cent, of the cost of plant, £100,000). As regards buildings, the table shows 1 per cent, on the original cost, plus a further £4OOO for each of live years, making a total of £20.000 special depreciation, equivalent to 20 per cent, of the original cost of buildings,” said Mr. Nash. "In the ordinary course, if the special depreciation allowance were not granted, the plant costing £lOO,OOO would be written down to a residual figure of £67,7’21, as compared with the residual figure above of £50.501. Ju the case of buildings, the normal residual figure would be £95.000, as compared with £75,0(10 in the table.” An agreement had recently been concluded between the United Kingdom and the United States of America Governments for the-purpose of eliminating

“double” taxation. A similar agreement was contemplated between' the United Kingdom anil New Zealand Governments whereby English companies establishing branch factories in New Zealand would be taxable in the United Kingdom on the total profits, subject to a credit for tax paid in New Zealand on the New Zealand profits. /V similar principle would apply in converse cases. This would enable new industries, with the advantage of overseas patent rights, formulae, and key personnel to be established in the Dominion.

Last night’s Budget was the tenth introduced by tlie Labour Government, in tlie Budget presented in 19”6 tlie total revenue was £26.172,600, while tlie year just concluded showed a total from nil sources of £ 124.0W1.0U0.

Plant cost ... First year, 74 Plus .. p.c. (d.v.) 7,500 4,000 100,000 11,500 Second year, 71 1 p.c. (d.v.) 6,038 88,500 Plus 4,000 Third year, 7} p.c. (d.v.) 5,840 10,038 77,802 Plus .. 4,000 Fourth year, 71 1 p.c. (d.v.) 5,102 9,840 08,022 Plus .. 4,000 Fifth year, 7 J p.c. (d.v.) 4,419 9.102 *584)20 Plus .. 4,000 Residue — 8,419 £50,501 Buildings cost .. £ 100,000 First year, 1 p.c. (o.c.) £ 1,000 Plus •• 4,000 Second year, 1 p.c. (o.c.) 1,000 5,000 95,000 Plus .. 4,000 Third year, 1 p.c. (o.c.) 1,000 5,000 90,000 Plus 4.000 Fourth year, 1 p.c. (o.c.) 1,000 5,000 85,000 Plus ... 4.000 Fifth year, 1 p.c. (o.c.) 1.000 5.000 *804)00 Plus 4,000 Residue 5,000 £75,000