THE NEW TAXES

Evening Post, Volume CXII, Issue 90, 13 October 1931, Page 8

THE NEW TAXES

(To the Editor.) Sir,—l am afraid that the tables regarding income tax published iv youv columns fail to sufficiently enlighten taxpayers as to the effect of the recent increases. What taxpayers desire to know- is the method to be adopted by the Department in assessing the tax. In the first place income received from dividends (on which tax has already been paid) is added to a taxpayer's assessable income in order to ascertain the increased rate at which he shall be assessed. . In the ease of a taxpayer with an earned income of, say, £2000, plus unearned income £2500, he would (leaving out tor the moment any deductions he might be entitled to in respect to children s allowance, or insurance premiums) be charged the rate applying to an income of £4500. If, however, he had also received dividends to the extent of, say, £3000 (on which tax at company rates had already been paid), he would be charged on the income of £4500 at the rate applying to a £7500 income. Then the 10 per cent, deduction previously allowed in respect to earned income (up to £2000) is withdrawn, and ou the top of this, one-third of the income tax payable on unearned income, is to be added as a. special emergency tax. In the case suggested above, will this special emergency tax be calculated at th£ rate applying to a £4500 income, or to a £7500 income? Then, again, a special flat rate tax of W in the £1 (after allowing for an exemption of £500) is to be imposed. Is this to be calculated on a taxpayer's total income (including dividends, etc.) or only on his unearned and earned income (excluding dividends) ? When all of the above extra'taxes have been calculated, a surtax of 30 per cent. IB to be added to that total. I venture to suggest that you ask the Commissioner of Taxes to show in detail how the tax would be worked out on the following example:—Taxpayer with, .say, three children under IS years of age, entitled to exemption of £50 in respect to each child; also entitled to exemption for life insurance premiums paid amounting to £250. Earned income, say, £2000, unearned income (apart from , dividends), £2500. Dividends, say, £3000. I assume that the amounts of graduated income tax leviable on taxable amounts are the same as those published in the Department's book of tables issued 1927. I am sure that an explanation of the points raised above will be welcomed by many taxpayers.—l am, etc., PUZZLED. [Of the total of £7500, the amount of assessable income is £4500, which must pay at the £7500 rate. The tax on £7500 amounts to £1593 ]ss. Add 30 per cent, surtax (£478 2s 6d)—£2071 17s 6d. The assessable income on £4500 will therefore be 4500/7500 of £2071 17s 6d, which is £1243 2s 6d. In addition,> the unearned portion of the income (£2500) pays at a rate greater by 33 1/3 per cent, than the earned portion of the income. The amount ,of tax already charged on £2500 unearned income is 2500/4500 of £1243 2s 6d, which is £690 12s 6d. The unearned income of £2500 therefore pays an additional tax equal to one-third of $690 12s Od, which is £230 4s 2d. The special assessment of 4d in the £ is calculated, on the assessable income in excess of £500—that is, on £4000. This tax works out at £66 13s 4d. The total tax payable is thus: £1243 2s 6d plus £230 4s 2d, plus £66 13s 4d, which is £1540.] (To the Editor.) Sir,—Like many hundreds of other taxpayers I have studied with acute interest the various analyses' published in your journal during the last few days, comparing the new taxes with the old, and although the tables and calculations published show great increases iv income tax for the current year, I am wondering if one important item has not been overlooked. The tables published in your issue of Thursday last and the calculations by "A Business Man" published in Friday's issue both note the increase in the surtax from 10 to 30 per cent., and the abolition of the 10 per cent, deduction in the ease of earned income, and the new surtax of 4d in the £ on incomes in excess of £500; but so far as I can see no mention or calculation is included of the "special emergency tax on unearned income of individuals equal to one-third of the-income tax payable on such unearned income" as declared by the Minister of Finance in his statement. That this is an additional impost over and above all the other details of the tax. is, I think, borne out by the Minister's declaration that he ''was not forgetting the fact that the main Budget increased the surtax from 10 pur cent, to 30 per cent," It' my assumption is correct, it clearly means an enormous additional demand on taxpayers in <;om|i;iii.soii with the tables and calculations iilri'iidy published. With regard to (his additional import to be Wiiimcd from the recipients of interest from loan investments and dividends from other investiuenls under the guise of im-

earned income, it will no i)onbt surprise many of your readers to learn that the Income Tax Department regards superannuation receipts as unearned income, and therefore liable to this additional impost. 1 think chut most contributors to super- j animation funds regard such payments as! particularly hard-earned income, and that they will expect the Government to arrange that such income shall be regarded as earned income and freed from this extraordinary impost.—l am, etc., CURIOUS. [So far as can be ascertained from the brief particulars given in the Supplementary Budget the addition of one-third to the tax on unearned income will apply as well as the increase in the surtax. We pointed this out in our first editorial reference to the Budget. But as the impost is on individual incomes it will not apply to dividends from companies which pay company taxation. To treat superannuation as earned income would involve the necessity of making an equal concession to persons who have incomes from insurance and other investments —the'provision made by private persons for old age. This strengthens the argument which we submitted concerning the weakness of the distinction between earned and unearned inI come. —Ed.]