TAX ON SHAREHOLDERS

New Zealand Herald, Volume LXXI, Issue 21769, 7 April 1934, Page 13

TAX ON SHAREHOLDERS

FEDERAL ASSESSMENT DOMINION DIVIDENDS PROFITS EARNED IN AUSTRALIA An unpleasant surprise has been provided by tiie Australian Government tax department for some shareholders of New Zealand companies whose trading extends to the Commonwealth. Shareholders of some prominent New Zealand companies have received notice of assessment for Federal income tax on their dividends, the assessment being based 011 the proportion of profits earned by the companies in Australia. This is something new in Government taxation, although the Federal Government for some years has taxed the dividends of New Zealand shareholders of companies with head offices in Australia.

One Federal taxation law makes possible the taxation of companies in respect of profits earned and the taxation of the individual shareholder, whether a resident of Australia or not, when those profits are distributed as dividends. Evidently officials have discovered that they can throw their net a little wider and catch the New Zealand shareholder of a New Zealand company operating partly in the Commonwealth. There appears to be no precedent for this action.

The law in New Zealand dealing with taxation of dividends in the hands of shareholders appears mild in comparison with Federal legislation. Actually, the income tax department does not levy directly on dividends, but assesses income derived from that source for the purpose only of increasing the rate of tax. This applies to dividends received from any New Zealand company or Empire company trading in the Dominion, which has itself paid tax on its profits. There are very few instances where the tax has not already been paid. The method of increasing the rate is explained in the case of a taxpayer with, say, a salary of £7OO and income from dividends of £2OO. The rate 011 £7OO js lid in the pound and 011 £9OO, Is Id, so that the levy is Is Id 011 £7OO only. Under New Zealand law, dividends received from Empire companies not trading in New Zealand are not assessed at all. Thus, Bank of New South Wales dividends are brought iii for increasing the rate only, while Mount Lyell dividends escape taxation altogether. The only case where direct tax is levied is on income derived from investments in foreign companies.

It is understood that the assessment is retrospective for some years. Principal among the shareholders affected by the Australian tax are those with holdings in the South British and New Zealand Insurance Companies. No demands have yet been received, but the matter has already been taken lip with the New Zealand Commissioner of Taxes, who has stated that he can take no action. A group of shareholders is now considering an appeal against the tax.