TAXATION ANOMALY

Evening Post, Volume CXXVIII, Issue 19, 22 July 1939, Page 11

TAXATION ANOMALY

PAYMENT AT DEATH

SOCIAL SECURITY

DISCRIMINATION SHOWN

It is possible, under the existing taxation law of New Zealand, for one i man to die a day after a new tax has j been imposed, and for his income to j i be liable for a full year's tax; and for another man to die in the same cir- i cumstances and his income to be liable j i for only one day's tax, says a statement by the special taxation committee of the Associated Chambers of Commerce of New Zealand. j Such an anomaly could actually occur in connection with the applica- , tion of the Social Security charge to j [income derived from sources other ! than salary or wages, under which i there, occurs a most unjust and un- j warranted discrimination against sucn income in the case of persons, leaving New Zealand to take up residence abroad or in the event of the death of such a person. The anomaly operates in such a way that in certain instances a person who has derived his income from sources other than salary or wages is required to pay the Social Security charge in respect of a period twelve months greater than if he had derived his income from salary or wages. THE PREVIOUS METHOD. The Social Security charge first became operative as from April 1, 1939. In other words, the first year of assessment of the charge commenced on April 1, 1939, and ends on March 31, 1940. In the case of persons deriving income from salary or wages, the charge is payable—at the source—in respect of all such income earned on and after April 1, 1939. That is to say, the income is taxed, as it arises, during the currency of the assessment year. In the case of income derived from sources other than salary or wages, on the other hand, the measure of the charge payable in and for each assessment year is fixed by reference to the actual income derived by the taxpayer during the year immediately preceding. In other words, the amount of such income derived during the year ended March 31, 1939, is taken as a basis for fixing the amount of the Social Security charge payable for the year ending on March 31, 1940. It will thus be seen that while the wage-earner or salaried person is taxed on the basis of his current income, the person who derives income from other sources is taxed on the basis of his previous year's income. It is quite obvious, however that the Social Security charge on the income of each class of taxpayer is paid in > and for the same assessment year, the proof of this fact being that the charge constitutes a new form of tax which first commenced to operate as from April 1, 1939, and that at March 31, 1940, each class of taxpayer will have paid one full year's tax. If the tax were abolished as at March 31, 1940, therefore, it is clear that no further amount of Social Security tax would be properly payable by either class of taxpayer, since the wage-earner or salaried person would have paid twelve months' tax—based on his income for the year ending March 31, 1940—while the person deriving income from other sources would likewise have paid twelve months' tax, although based on his income for the year ended March 31, 1939. An acknowledgment of the foregoing principle is to be found in the fact that when employment tax—unemployment tax as it was then styled —was originally introduced in 1931, it first commenced to operate as from August 1, 1931. In so far as income from salary or wages was concerned, however, the tax was payable only in respect of all such income earned on and after August 1, 1931, whereas in the case of income from other sources the amount of tax payable for the eight months* period from August 1, 1931, to March 31, 1932, was based oneight months' proportion (that is. twothirds) of the income derived from such sources during the year ended March 31, 1931. Thus, when the tax came to be abolished as at March 1, 1939, both classes of taxpayer had been effectively taxed in respect of the same assessment period—seven years and eight months.from August 1, 1931, to March 31, 1939—although the wage-earner and salaried taxpayer had paid on the basis of the actual income derived by him during that particular period, while other taxpayers had paid on the basis of the income derived by them during the period from August 1, 1930, to March 31. 1938. DEPARTURE FROM PRINCIPLE. The particular anomaly which is now manifest, however—and we understand that a similar position previously arose under the provisions of the Employment Promotion Act—is that in the event of the death of a person who has derived income from sources other than salary or wages, the Department contends that, in terms of the existing law, social security tax immediately becomes due for payment by his estate in respect of all income derived by the deceased during the year ended "March 31. 1939. and also on all income derived by him from April 1, 1939. up to the date of his death. In the case of a wage-earner or salaried taxpayer who dies subsequent to March 31. 1939. however, the Department acknowledges that Social Security tax is payable by his estate only in respect of income derived by him for the period from At>ril 1, 1939, up to the date of his death. Thus, notwithstanding that both classes of taxpayer were properly regarded as "all square" for employment tax purposes when that form of taxation was abolished as at March 31. 1939. yet, in the event of the death of a taxpayer of each class on. say. April 1. 1939. the estate of one is held to be free from liability for the payment of any amount by way of social security tax. while the estate of the other is held to be immediately liable for the payment of a full twelve months' Social Security tax. based on the income derived by the deceased from sources other than salary or wages during the year ended M^rch 31. 1939. A similar form of discrimination operates in the case of persons leaving New Zealand to take up permanent residence abroad. "NO JUSTIFICATION." From whatever angle the matter is j viewed, no sound justification for such | discrimination as between different [classes of taxpayer could possibly be i urged. As a matter of principle, also, lit aopears to follow that as Social Security tax is a new tax, which first commenced to operate as from April I. 1939. then, in the event of the death lof a person subsequent to that date, ! the measure of the liability of his I estate for Social Security tax should |be fixed by reference to the period of (the assessment year which had elapsed (prior to his death. In other words, if a taxpayer died on, say, June 30, 1939, then his estate should properly be liable for only three months' proportion of the Social Security charge. This principle is, in fact, actually applied in the case of wage-earners or salaried taxpayers, and there appears to be uo i justification for discrimination.