RETROSPECTIVE

Nelson Evening Mail, Volume LXXII, 8 September 1938, Page 3

RETROSPECTIVE

NEW COMPANY TAX FOR SOCIAL SECURITY WHAT SHAREHOLDERS PAY Examination of the full provisions of the proposed amendments to the Social Security Bill imposing an extra tax of Is in the £ on company profits, reveals that the tax is payable on prolits earned since ‘fist March. 1938, and in some instances on profits that were earned prior to that date (says the Auckland "Star”;. Another important aspect is that for the year ending 31st March, 1938, shareholders will pay the tax; companies will pay the tax for that period on the excess of profit over the amount of the interim dividends. Dr. H. A. Cunningham, an authority, on taxation, states: “The effect will be that tax will be paid on all capital profits of the company whenever they are distributed to shareholders. The provision operates only the one way—in favour of the Crown. No allowance is to be made for any losses on capital assets The injustice of this is fairly obvious. “MANIFEST INJUSTICES' “The taxation on companies in New Zealand is already extraordinarily high. A large company usually pays a very substantial sum in graduated land tax. Ifs income tax. however, is calculated not only on the income which is available to its shareholders, but also on that part which the Crown has already taken as land tax "This new tax, including as it does certain manifest injustices, will be a very serious added burden to many companies, and will no doubt further discourage any investments in this country. This new section appears to indicate that the Government has no intention of including among its promised amendments to income tax law any provision for changing the incidence of taxation from companies to individuals. “The Crown will receive a shilling in the pound on undistributed profits, whether they arc transferred to reserves or remain in the profit and loss account, said Dr Cunningham after an examination of the full wording of the amendments. “It will further receive tax purposes, reduce the amounts that although not allowed as deductions for tax purposes, reduce the amoutns that can be distributed to the shareholders. “Companies whose assessable income is arrived at on a different basis from that of ordinary companies, are exempt from this tax. Those are companies engaged in life, insurance, banking, goldmining, scheelite mining and petroleum mining. The taxable incomes of these companies for income tax purposes is arrived at in a more or less arbitrary manner, which in some cases bears little relation to their actual profits. The dividends of these companies will be taxed in the hands of the shareholders Provision is also made for the exemption of other classes of companies by Order-in-Council. ELABORATE SCHEMES “The proposal to impose the special tax on incomes of companies is expressed in two elaborate sections, the meaning of which can be determined only by careful examination. The general effect is that the tax will be levied upon the total income derived by companies after 31st March, 1938, and upon any income derived prior to that date if it is distributed in any manner to shareholders.

“In respect of income derived by a company" during the year ended 31st March, 1938, the amending clause provides that shareholders will pay the tax on dividends paid during the year out of the income of that yeaf ; the company will pay the tax on the excess of its income over the amount of interim dividends.

"Dividends paid after 31st March, 1939. are exempt from the tax in the hands of shareholders. An exhaustive definition of the term dividends has the effect of applying it to profits distributed to shareholders in any form, such as bonus shares of the surplus above paid-up capital in the event of a winding up. The tax on all such profits will be paid by the company. “The final sub-section is designed to impose the tax on any profits earned by a company prior to Ist April. 1938, that may be distributed after 31st March, 1939 ’