TAXATION COMMISSION

New Zealand Herald, Volume LXI, Issue 18705, 10 May 1924, Page 13

TAXATION COMMISSION

• EFFECT' OF PRESENT LAW. " NO LOANS ON MORTGAGE. RETURN BELOW WAR STOCK. QUESTION OF DEBENTURES. . Informative statements were made before the - Taxation Commission yesterday i regarding the effect of high taxation on the policy of financial institutions, particularly the general restriction of loans on mortgage securities. The position was explained by Mr. H. P. Kissling, general , man ager of the New Zealand Insurance Company (the only witness yesterday). ' He. had, not prepared a statement, but replied on the instant to many questions by members of the Commission. - Mr. Justice Sim, chairman It has been suggested that a change should be made in, the present law as regards taxation of income derived from debentures issued by municipalities and companies, and that such income should be treated as part of the income of the taxpayer and taxed in the same way as the rest of his income. Can you give us any idea how such a change would operate ? ' dir. j£issling: Provided the general income tax was reduced substantially, institutions such as ours would welcome that change. It is the heavy income tax on' companies at present which they feel so much. We have two sources of revenue nrsw, our business underwriting revenue 14 second, the profits from internal investments. We would prefer to see a considerable reduction in the general income tax, even if we had to pay a little debentures 1676511 ° m investments such as Dentures. | New Issues of Debentures. 1 So, in the conditions you mention, your Company would welcome the change such |f. suggested Yes. At the same time, iterations in the municipal side of our 1 ventures. The present high rate of Harness are not pleasant. Investors do : ot like tnese continued alterations in 1 i ach stocks as municipal or company deentures. The present high rate of 1 ixatwn on debentures, 4s 6d in the £ 1 ! l respect of new issues, precludes commies such as ours from investing in hem. ' Is it the; small investor who invests 1 . |t debentures of • that kind?Hji can intest in them, because he gets a proper i iturn, and also gets his drawback on J f om provided his rate of taxation does * Pt come up to the maximum of 4s 6d. | Mortgages Not Attractive.

Mr. W. D. Hunt: Has the high taxa- ■ on made any change in respect of your >mpany's investments on mortgage?— 'ery seriously, indeed. We desire to lend ■4 J-mortgage, but the high rate is a great \pdicap. low does your investment in mortgages mpare with the pre-war period T— fe been very considerably reduced; even Ore than that. f suppose your total investment funds © greater?— much so. As a matter « fact, our company is not lending on irtgago and paying 5s lOd in taxation, ft directors are averse to charging J>re than 6£ per cent, interest on loans. ?iey consider that that is about the bit a farmer can afford to pay. In any •ise, you hare ,to take 38s off the £6 ; }s, ■ which brings the return down to 4 12s, and we get £4 16s 3d from 1938 nd 1939 war loans. So we do not lend n mortgage at all. We can only ; lend t hrough our trust estates. It is a posi- \ ion we do not like. We would prefer jo assist the Dominion by advancing :'\ honey on mortgage. It suits both the A Underwriting and interest side of our r| business to assist th© Dominion in that

I * ay. : ! Witness, in reply to Mr. T. Shailer ', ."Veston, said that his company had inVested in ' Australian Federal bonds which ■ yere returning £6 9s. " • ! '' ■?> Mr. Weston: These are a very handy 4, of security, because they are so iquid!— is so. J - Load Bodies' Debentures. j ! It was pointed out by Mr. Weston that he tax on new debentures was 4s 6d in J tie £, while the limit of i the. graduated lcome tax was 5s 10£ d. The Governjient had been aiming all through at Inducing taxation and had pulled it down :'bm 8s 9d to 5s 10£ d. . They were hoping for a i'crther reduction. Did the . fitness, he ; asked, think it advisable to .7 icrease the present : rate on debentures :»r view of. the likelihood of tho maxi'immjfafie coming likelihood of neighbourum ralie coming down to the neighbourbod of 4s 6d ? Was it Worth while to •lake a change for a year or two? H jMr. Kissiing fcaid - iha> perhaps the - test way he could reply was to say that . I'would nat f, tempt t the large institujons to invent in municipal debentures •feo ; at a taxation rate of 3s. The jturn would be less than was obtained fom tau-freo investments. Investors in ; municipal debentures would, he thought, . K>k . upon making the taxation rate re•ospective as a breach of faith. Generally speaking -it. would pay large comi inies to be &r a little • additional burden 4 that direction, provided the income -«c • was suits tan • reduced. J Unable to Lend at 64 Par Cent. i : In ; reply to i Mr. G. • Shirtcliffe, ■ witness | -viathe public generally were looking Jr. a reduction in • taxation, not an increase in any direction. Capital was isily frightened. * The New Zealand insurance ~ Ccmpany had constant appeals ir ' money, but . -the legislation had put ompanies •in ■ such a position that ' they : (mid not ad ranee money on mortgage at - -.1 per cent. ' - ' FMr. v Short* :If you lent money at ' per cent., you would get a little more ian £4 163 3d in return under the present ite of taxation?— Yes, with the diffi- • allies of ool' ecti-on of the interest and so n.

jSo "we may say . that until rural ' land caches a stable value based upon the apacity of - production, it will be diffi- ! :uit for borrowers to obtain their requirements? is - the ideal position, of ■f. oiirse, if we could get it. - What reduction in the maximum rate of -aiatior would you consider necessary to iput you again in a position to lend in '"(respect of mortgage securities ?—Provided Iwe can get : something over the war-loan fret urn in m erest plus Jihe certainty that • jwe are not coing to have the income tax j continually changed. One of the difficulties of lenders is the constant changes in taxation. . . - •j; Mr. . Shirtcliffe: That! is our —to • >fet finality!- (Laughter). ; But. .supposing. > or the sake of argument, that the maximum ,rnfe was reduced to 4s 6d, • which . .'ould give yon a return of £5 Os 9d, would hat be sufficient to send you back to .•Mortgage securities ?— sound mort- ; flees, ves, provided wd®%ad some cerlintv that it was. to be a perm?ent jd''ction. Menmvhile, our " lighthouse " • .1 1938 and war-loan b^nds. j.,No other 'evidence was submitted, and pe commission Adjourned, after'4o mii»- • |fe«' sitting. .- till »Mondav at 10 am.. • ,khen representstives of the Auckland Chamber of Commerce will be heard!