INCOME TAX MANOEUVRES.

New Zealand Herald, Volume LX, Issue 18332, 23 February 1923, Page 3

INCOME TAX MANOEUVRES.

Sir, —Unfortunately I have not thfl necessary authority to publicly identify 1 the source of Mr. Wilford's taxation, but, in reply to ''■ Dodger," -I quote from the document referred to the. following passage which - supports jthe contention .in my previous letter to which ' 'Dodger" takes exception:—"Con- \ sider the position of, the retired. man of . ■ large means who, is merely investing his money and using so much of his income as he requires for his living and reinvesting the balance. Assume that such i a man has an income of £10,000 ,a . year. The common idea is that he was paying ' 8s 9 . 3-5 din the £, or, £4400 a year, and « ' that the reduction of tax'to 7s 4d in the £ last -session of ; Parliament reduced his tax to £3666 13s 4d, making him" a present of £733 6s 8d a year. . This is not the ■ position at all. This ; retired ?; man never paid 8s 9 3-5 d in the £, : and is not paying 7s .4d now unless he is : foolish. If he is alive :to his own interests, and most men in his position are; ' ,■ he will have accepted the open invitation . that our income tax system gives to the V ; wealthy to avoid taxation and to leave v ; the burden on the shoulders of those of "■ moderate, means and on the poor. • How is it done? It is done by changing his investments into > channels that >. are either not taxed, or are very lightly taxed, or in which the taxes are passed on, or by distributing his investments in : such a way that his income is (divided ~ up and not treated as* one income for the purpose of the graduated tax. • '.Put your- . self in the place of. a man with £10,000 a year arranging his investments. Sup-. pose he puts one-fourth of his capitai in tax-free war loan stock he can buy this now at a price that will return him £4 17s 6d per cent, net clear of taxation. •.. But this is not ; his only . saving. The effect of this change is that lie has re--duced his taxable income from £10,000 - to £7500 a year. This reduces his tax from 7s4d to 6s 3d- in the .£'•■ He has saved Is Id in the £ on £7500, or £406 a year, which is equal to about another 15s per . cent-' \on his investment in war loan; stock, making his , net return ;on '.-/ • that clear of tax £5 12s 6d per cent. ? • " But this is 'only the first step.\ Let him put another one-fourth of his capital into good public body loans. - He can , buy these at a rate that will return him 5$ per cent. The maximum tax on in- ) come derived from these loans is 2a 6d v in the £. His net return clear, of tax is therefore over s, x per cent. But this -is not all. . The effect of * the ; change . has : been to reduce his taxable, income from the £7500 left after the war loan invest- . ment to £5000 & year, and this'*, brings 1 ,/ down. the tax from 6s 3d in the £ to ; 4s' • 9d, a saving of Is 6d in thf £ oh the' re-'/', maining £5000, equal ; to £375 t> year,, op ; another 15s per cent, on his public body ■ investment. ' This more ; than •. pays /the : tax of 2s 6d in the £ on this investment • and leaves him with ; his full 5} per cent./ ' net* clear of tax. • Having been so successful in avoiding tax so far our wealthy friend will , not stop. If he puts half his remaining capital into shares of some company that he finds is able to pass the tax on to its customers, he can reduce his taxable income from £5000 to £2500 a year. He thus not only escapes tax on £2500 a year but reduces the rate on the remaining £2500 from 4s 9d to 2s 9d in the £, thus saving 2s in the £ taxation on his remaining £2500 , a year, equal to another £250 a year. Another favourite , method of the wealthy to escape taxation is to divide their interests ,up into small private companies, whose incomes while giving a . good return on the capital employed will be small. enough to be : taxed at a low rate. As long sis a man keeps his holding in each of these small companies below half the share capital, the income of the. company in the eyes of the law is quite apart from hisi own for the purposes of graduated . income tax." ' "Dodger" will note . that this is not a matter of defying the "statutes of our country," but is merely utilising the possibilities provided by them. " - •/. <-/./ A. S. Thowbb, Secretary N.Z. . Immigration and Land Settlement League. - • f ■