PENAL TAXATION

New Zealand Herald, Volume LXXV, Issue 23124, 24 August 1938, Page 10

PENAL TAXATION

UNEAKNED INCOME POSITION IN NEW ZEALAND AUSTRALIAN COMPARISONS TREATMENT OF DIVIDENDS The further investigations are carried, the more numerous are the proofs that rates of taxation in New Zealand compare unfavourably with those in Australia, says a statement by tho Associated Chambers of Commerce of New Zealand. We have already given tables showing the heavier tax rates in New Zealand, as compared with tho different States-of Australia, on companies and on the earned incomes of individuals. There are then the rates of tax on "unearned" income (rents, etc.). Below are given comparative tables showing the amounts of income and wages taxes payable in 1037-38 in New Zealand and Australia ,on the wholly unearned income of a taxpayer with a dependent wife. Commonwealth tax has been added in each case. Assessable New South New Income Wales Victoria Zealand ££sd£ s d £ s d 150 v 0 13 4 148 600 200 3 510 1 12 11 7 13 4 250 .5 14 2 860 968 300 .8 1 8 613 6 15 10 8 350 .13 10 2 11 3 4 23 2 4 400 . lb 19 0 16 1 11 30 19 6 450 .2418 11 21 11 1 39 2 4 600 31 10 10 27 9 0 47 10 8 South New Queensland Australia Zealand £)£sd£ a d £ s d 150 326 204 600 200 .434 712 713 4 250 . 914 11 12 310 9 6 8 300 . 14 - 0 0 17 4 8 15 10 8 350 .19 15 5 23 8 5 23 2 4 400 . 26 7 2 30 0 7 30 19 6 450 .35 1 11 30 19 5 '39 2 4 600 .49 17 8 44 8 6 47 10 8 , Western New Australia Tasmania Zealand £ £ s d £ s d £sd 150 .0 18 9 2 10 0 600 200 .150 3 68 7 13 4 250 : 618 1 6 1 9 9 6 8 300 .11 10 6 8 8 5 15 10 8 350 . 16 7 4 12 4 6 23 2 4 400 . 20 9 11 16 15 2 30 19 6 450 .27 0 10 21 19 6 39 2 4 600 . 34 10 10 27 17 5 47 10 8 The fact that in certain cases the . above rates apply to shareholders' dividends from companies, while in other cases they do not, raises tho subject of the penal rates of taxation on company operations in New Zealand. These rates riioe to a maximum of 7s 6d in the pound. Dividends from companies are not taxable in the hands ot recipients in New Zealand, but this is poor compensation for the fact that the shareholder does not receive his dividend •until it has been reduced by the amount of taxation which the company has been compelled to pay—as already stated, up to 7s 6d in the pound. Loss ot Exemptions If his income had been "earned" he could have had up to £260 (which includes £SO allowance for dependent wife) before he would start to pay income tax, and his commencing rate of tax at £261 would be Is B.Old, while at £SOO his rate would be Is 10.4 d (with an increase in each case of onethird for "unearned" income). But because he is a shareholder in a company, that part of his income which is composed of dividends has already borne the rate of company tax of up to 7s 6d in the pound, even though his total income may be below the statutory exemption allowed for individual income tax purposes. "By comparison, tho company shareholder in. New South Wales is taxed on his dividends, and this is after the company has already paid tax on its net assessable income. On the other hand, the maximum rate of tax paid by the company will have been 3s 3d (including Commonwealth tax) in the pound, tind the shareholder himself will then pay taxation only if his income is above exemption levels, and only then at his own graduated rate as an individual. This carries with it the right (which applies in every Australian State) to a rebate of Commonwealth tax on the part of the dividends included in his taxable income, calculated at his own rate or the company rate, whichever is tho lesser. Maximum Company Rates In Victoria dividends are taxed in the hands of the shareholders, but the maximum rate of tax the company will have paid will have been 2s IOJd in the pound. In South Australia dividends are taxed in the hands of the shareholders, the maximum rate of company tax being 3s in the pound. In Western Australia and Tasmania dividends are excluded from shareholders' assessments, while the maximum rates of company tax in these States are 3s 6|d and 3s 6d respectively. From these comparative figures it will readily be seen how shareholders in companies in New Zealand are Eenalised through their dividends being eavily reduced before they get them, due to the heavy rates of taxation on companies. Numerous people of moderate total incomes, partly or wholly derived from participation in a company, are virtually charged rates of tax in New Zealand which are out of all proportion to their incomes and their true capacity to pay. The only State ip Australia that can compare with New Zealand in rates of taxation generally is Queensland, where the maximum rate of tax on companies is 8s 2.6 d in the pound (dividends, a 9 in New Zealand, not being taxed in the hands of recipients). The Taxpayers' Association of Queensland, however, has some pertinent comments to make on the position in that State. It says, in a recent publication: "The recent Royal Commission on taxation was an independent and unbiassed body. It reported that the only advantage it -could see in the Queensland system of company taxation was that it 'facilitated the fine art of plucking the goose with as little squealing as possible.'' Capricious System "After a full investigation the commission's conclusions were that th 6 Queensland system is capricious and, at times, unfair in its incidence; that it violates all the equities of taxation, and is a penalty on efficiency. Under these conditions, how can private cnterbe expected to establish new businesses, or expand existing ones, and thereby create the employment and prosperity that this State is capable of providing?" This question applies with equal, if not greater, force to New Zealand. The higher maximum rate of tax on companies in Queensland, as compared with New Zealand, only applies to companies with profits exceeding 19 per cent. A company in New Zealand with profits of 7 per cent, for instance, actually pays a larger amount of taxation than a similar company in Queensland, as we have previously shown in detail.