LAND & INCOME TAX

Evening Post, Volume C, Issue 85, 7 October 1920, Page 7

LAND & INCOME TAX

THE AMENDING MEASURE

CHAMBER OF COMMERCE

COMMENTS.

The following comments oil, the tabled amendments to the Land and Income Tax Amendment Bill hay» been issued by the Wellington Chamber of Commerce : — The amendments to Clause 11 of the Bill put taxpayers having "earned" and"unearned" incomes on the same basis regarding exemptions in respect of dependent children; With regard to exemption* in respect of insurance premiums : the position of a taxpayer not having an "earned" income, or an income portion of which is deemed "earned" and portion "unearned," is improved in that he is allowed exemptions in respect of insurance premiums to the extent of 15 per cent, of his income from all sources provided it does not exceed £2000. The exemption in the cane of a taxpayer having earned income is not to exceed in -the aggregate 15 per cent, of the income, 20 "p"er cent, being the original proposal. \ ' Section 14 (a) makes the following alterations in the original proposals: — The income of local bodies other than income received in trust, is not to be taxable, and the only public authority (that is, Department of State! liable for income tax is the Public Trust Office. Under the first proposals in the Bill the State' Coal Mines Department, for example, would have been subject to incom* tax, but now it appears that the only Government Department (except the State JTire Department, for which there is special provision) which will be subject to income tax is the Public Trust Office.

The clause providing for the payment of income tax on income derived 1 from stock or debentures issued out of New Zealand has been repealed. Alteration in clause IS of the Bill, read in conjunction with the alterations to clause 4 of part^2 of the schedule, make it clear that a taxpayer with an "earned" income in excess of £2000 shall obtain 10 per cent, reduction of income tax in respect of £2000 of his income.

Clause 20 of the Bill regarding two companies with substantially the same shareholders is the cause of much apprehension in commercial circles. The business community confidently hoped that some relief would be given from this section as originally drafted, but the contrary is the case—the net has been drawn tighter. Two companies with substantially the same shareholders (that is where the same shareholders hold one half of the paid up capital of each com pany) are to be treated as one company for the purpose of income. tax, and under the latest amendment, if the Commissioner of Taxes is satisfied that the business of two or more companies jb substantially under the control of the sr.me persons, such companies shall a)s6 be treated ns one company. There will be numbers of cases in which hardship will be imposed where it is simply a matter of coincidence that half of the shareholders in two or more companies are the same; and, in. addition to this, it will check enterprise m that distributing companies will not be disposed to finance smaller manufacturing and industrial companies in the same way as has been done in the past. It is feared that this clause is likely to act as a setback to the development of secondary industries in the Dominion. It is a matter of common knowledge what has happened in recent years—that companies interested in the distribution of articles have financed smaller industrial conn panics manufacturing these articles. Now the smaller company is to pay income tax at the rate provided for the aggregate incomes of both companies. The latest provision is that "if the Commissioner is satisfied that the business of two or more companies is substantially under the control of the same persons

.. . ." What 'does "control" mean? Does it mean management, .or financial control, or is the section to apply if there is the same directorate in two companies ? ,Or What, does the latest amendment mean ?

The.original proposals regarding income tax payable on debenture income have been eliminated, and the new clause provides that local and public authorities shall render returns as agents for dekbenture holders. in the spine way as is at present done by companies. The tax on income'from'debentures of local ot public authorities is to be .at the rate of 2s 6d in the £, while the company debenture tax is to be 3s in the £.

There were cases in recent years mi which companies had issued debentures without a specific rate of interest. In some cases the interest was to bei at the same rate as the dividend paid' on the capital of the company. In this way certain companies paid income tax on portion of their profits, distributed as deh benture interest, at the rate chargeable on debenture (2s 6d in the £). Clause--22 of the Bill, which has been eliminated, was apparently drafted to meet such cases, but in doing this it went very much further than was intended; consequently it has not been proceeded with, and clause 23 (c) has been drafted to meet thie> class of debenture issue mentioned above.