TAXATION ON INCOMES.

New Zealand Herald, Volume LV, Issue 16971, 3 October 1918, Page 7

TAXATION ON INCOMES.

ASSESSMENT OF COMPANIES

EFFECT ON SMALL INVESTORS

The operation of the income tax as it affects small shareholders in companies was tho subject of an address delivered by Mr. W. H. Hemingway, at the annual meeting of the Auckland branch of tha New Zealand Society of Accountants, in the Chamber of Commerce, last evening. Mr. Hemingway said it was well luwwn that the Commissioner of Taxes had already circularised companies with a view to ascertaining the amount of their last 'dividends, and other information, and it was rumoured that legislation changing th..i present system was likely to bo brought down next session. After explaining the working of tho present system, the speaker said that the individual was entitled to certain deductions by way of special exemption. These deductions

I j included the annual premium, up to £50, I I on life insurance policies on the taxpayer's ' j own life; £25 for each child under the age ,i of 16; or a special exemption of £300, diminished at the rate of one pound for every | pound of tho excess of that incomo over £600, bo as to leave, however, no deduc- , tion under this rule when the yearly asi sessabio incomo amounted to or exceeded £900, An incorporated company was en- '. titled to none of these exemptions under I the provision imposing the ordinary tax. Under the special war tax provision, however, a company, like an individual, was entitled to un exemption of £300. Dealing with what he described at the unfairness of the present system, Mr. _ Hemingway mentioned the case of a widow who would in a pre-war year expect to receive a net total income of £400 a year m dividends from money invested in an incorporated company. Placing the taxable income of the company |at £6400 or over, the company I would pay three shillings in tho pound by way of ordinary income tax, a special war tax—less an exemption of £300—at the rate ruling for a taxable income of £6100, and then a super-tax of 50 per cent, on tho war tax—a total of approximately 7s 6d in the pound. Thus, at the present time the widow might no: receive £-100, but only £250, since, owing to the heavy tax, the company would be unable to pay more. It was not meant from this, said the speaker, that the company would declare such a dividend as would nominally entitle the widow to £400, and then deduct her proportion of tax, as a company was not allowed 10 pass on its liability. Such a case showed that, owing to the heavy taxation the dividends might automatically be less than would bo the case if no tax, or a much smaller income tax, were payable by the company. The case was contrasted with that of a man receiving an income of £400 a year from any source other than dividends from companies in New Zealand. It might well happen that, while the widow paid approximately, but indirectly, 7s od incomo tax in the pound, i the man paid practically nothing. It was claimed, said the speaker, that the! present system was the least expensive and most effective method of collecting tax. It consisted of ' taxing the source," a method usually advocated by the authorities en fiscal matters as the soundest, safest, and surest. It might, and probably would, be necessary to raise considerably the rate of tax on individuals if an alteration to the present system wero brought about, since practically half of the income tax revenue was derived from the taxation of companies. As an argument, he held, this would not stand if an injustice were being done under the present system, but it was none the less a point of very far-reaching practical importance.

Continuing, Mr. Hemingway said that in tho case of small investors in prosperous large companies it would probably bo better to deal individually with any "hardship under a revision of section 37 of~tho Finance Act, 1917. He related a conversation ho had had with a director of a gas company recently. This director told him that if the mode of asseseing companies for income tax were altered and tho individual shareholders assessed, his company could, and would, reduce the price of gas 2a per thousand. " Did this not mean," asked tho speaker, "that the consumer, and not even the smallest shareholder, is paying the company's tax."