AUSTRALIAN TAXES

New Zealand Herald, Volume LXXI, Issue 21932, 16 October 1934, Page 11

AUSTRALIAN TAXES

BY DR. H. A. CX7NNINCHAM

LEViY ON NEW ZEAL ANDERS HOW THE LAW STANDS CAN PAYMENT BE - ENFORCED

No. 11. The amount of the rebate which the Federal income tax law allows in the assessment of the share--holder to normal tax is calculated on the amount of the dividend included in that assessment. If the rate of normal tax payable' by the shareholder on his income from property is higher than the rate of normal tax payable by the company, rebate is allowed at the company rate. If his rate is Jesis than the company rate, rebate is allowed at his individual rate. ' The result, in the latter case, is that no normal tax is payable by the shareholder on his dividend, but it is taken into account only, as in New Zealand, to increase the rate at which he is taxable on any other income from property in Australia. If his rate is greater than the company's rate, he does pay tax on the dividend and, in addition, the dividend will increase the rate at which he is taxable on any other income from Australia. It iis only tho company's rate for normal tax which can be so taken into account. Its special property tax, if any, is disregarded. In respect of dividends paid before August 4, J93-1, the company rate for rebate purposes was the rate at the time the income distributed was earned by it. In respect of dividends paid since that date, its rate for rebate purposes is its rate for the financial year in which tax is levied on the shareholder in respect of the dividend. The rates of normal tax payable by a company were as follows:—lncome derived during .the year ending June 30, 1931, Is 4.8 d; 1932, Is 4.8 d; 1933, Is; 1934, Is. ' The calculation of the rebate allowable to the shareholder was an extremely complicated process prior to the passing of the 1934 Act. Although some of the complications have now been removed, it is still a very difficult matter to check the assessment. The Tax On New Zealanders Tho effect, therefore, is:— (a) A New Zealand shareholder is liable to both normal tax and special property tax on that proportion of his dividend which is paid from Australian sources other than those exempted and referred to in the last article. (b) Owing to the rebates allowable as the normal tax assessment, no normal tax will be payable unless a considerable income is derived from Australia. {c) Special property tax will be payable in all cases on the full amount of the dividend paid from Australian sources not so exempted and at a flat rate of 6 per cent. No further exemption or rebate is allowed. The question arises as to whether payment of this tax can be enforced against a New Zealand shareholder. There is no doubt that it can be enforced where the company is incorporated in Australia, or where the shareholder is registered on the Australian register of a company incorporated elsewhere. In these cases, the local situation of the share which is the source of his income may be held to be Australia. But the position is not so clear where the companj' is incorporated in and controlled from New Zealand. As a general rule, tax can be levied only on persons, property, or transactions within the jurisdiction of the country imposing the tax. In this case, tho shareholder is not a resident of Australia, and although he has some interest in the Australian property of the company by .virtue of his shareholding, his own property is his share and that is situate in New Zealand. A High Court Judgment The Commonwealth authorities, however, consider that, if the company derives any part of its income from a source in Australia, then tee shareholder also derives part of his income from a source in Australia. The High Court of Australia has decided that the English shareholders in a company incorporated in and controlled from England are assessable on that part of their dividends paid out of profits derived bV the company in Australia., but no case has as yet been • taken to the Privy Council. For the collection of this tax, two courses are open to the Commonwealth, authority. Firstly, it may assess the New Zealand shareholder direct. In such case, if he has no property in the Commonwealth, he can usually please himself as to whether he pays the tax or not, for tax imposed under the Commonwealth Act cannot be enforced in the Courts of New Zealand. Secondly, it may appoint the company the agent of the taxpayer, and require it to pay the tax on his behalf. When Shares aire Sold The company is, however, not personally liable, unless, after the notice is given by the commissioner, it parts with money of the shareholder out of which tax could legally be paid. If the shareholder, after receiving his dividend, but before the company has received notice that it is accountable as his agent, transfers the shares, then tho tax could not be collected from tho company. If the company pays the tax, it is authorised h. v the Federal Act to deduct the amount paid from dividends. This statutory . authority to recover is effective only in Australia. Thus a. New Zealand company may have issued preference shares in New Zealand upon terms entitling the holder to dividends at a fixed rate. It earns part of its profits in Australia and is accordingly required to pay Commonwealth tax on behalf of the preference shareholders. A special provision is included in the Commonwealth Act authorising the company to deduct the tax from dividends in such a case. This provision cannot, however, affect the right of the preference shareholders to the full amount payable to them under their New Zealand contracts without any such deduction. Double Taxation It would seem, therefore, that in very many cases the Commonwealth will be unable to collect this tax. Those residents of New Zealand from whom the tax can be collected will again have their dividends taken into account in their New Zealand assessments for the purpose of computing their rates of tax and special exemptions.. In most cases they will also be liable for New Zealand unemployment tax thereon. The double taxation thus imposed arises mainly because the Commonwealth has adopted this novel method of making dividends liable to Commonwealth taxation. Other countries are content to tax absentees if their shares can be held to be property situate in such countries and this seems to be, the ooly fair method. The New Zealand Legislature has not been behindhand'in claiming tax fron:, absentees on matters which are not within its proper jurisdiction at all, a glaring example being the income tax imposed by the 1933 Act in respect of interest on debentures issued abroad by absentee companies, but at least in tho matter of dividends it; is on sounder ground than the Coram,onweß.lih«