TAXATION OF DAIRY COMPANIES.

New Zealand Times, Volume LXXI, Issue 4259, 19 January 1901, Page 5

TAXATION OF DAIRY COMPANIES.

THE INCOME TAX DIFFICULTY. _ It will be remembered that a short time back the co-operative dairy companies cf th ! © Wairarapa protested to the Government on behalf of themselves aiid co-operative dairy companies generally against the imposition of an in* ccme tax on the profits of these companies. This protest was held to be reasonable, and an amendment to the Act was made during the past session, which provided that the profits made by co-operative dairy companies from milk supplied—and which profits were returned to supplying shareholders—should be exempt from taxation. The position before the passing of this amendmejnt was- that certain cooperative dairy companies were taxed on an amount shown in their balancesheets as “profit divided among shareholders.” Some companies, 'however, showed this amount as it should have been, viz., a balance “due to suppliers for milk delivered.”

The payment to suppliers is worked out in this manner. In the majority of cases a company when shipping on a consignment basis receives an advance, and should the butter realise in London a sum exeoeing the advance the surplus is sent out to the factory, often at the end of a season, but sometimes at stated! intervals. The factory, therefore, has to decide on an advance to be paid to the suppliers throughout tho year, and at the end of the season the different surpluses are added and divided proportionately among the suppliers as a balance of the amount which their mill:: has realised. It was the paying of tax on this balance that the companies objected to. The companies who showed the amount in their balance-sheets as a profit wejre taxed on the amount, whereas no tax was demanded from those who showed it purely as a balance quo on milk. When .the- amendment referred to became law milk suppliers were under the impression that co-operative* companies were exempt from all taxation. It appears, however, that their anxiety to escape taxation has after all Oeen the means of awakening the Income 'Tax Department to the fact that there are items in a co-operative' company's bal-ance-sheet which are not affected by the amendment and which are legally ami equitably taxable—such items, for instance, as dividends on share capital, amounts written off for depreciation and interest cn. borrowed capital. These amounts co-operative dairy companies are now being called! upon to pay a tax on, with the result that hardly one com-, pany has recognised the justice of the claim, and they are all with one accord railing against the demand. We would point out, ..however, that the tax is only levied on amounts which are reasonably taxable and arc liable to taxation in the ordinary course of any company’s transactions. The amount after all is insignificant. Take an average case. A certain company has a pam-uo capital of £BOO, six per cent on wmch would amount to £4B j £52 is written off for depreciation (but the Tax Department allows a concession of five per cent, on half the value of the plant), and £lO is paid on the overdraft. Here wo have £llO, ten per ceilt. cn which is £ll, au amount which surely any dairy company would not miss. The contetion has been raised that farmers supplying co-operative dairy factories with their milk already pay a land tax, and that, therefore, they shoulu bo exempt from any further imposition. It should be remembered, however, mat the land tax they pay is based on tire unimproved value of the land, and as they are exempted' up to a valuation of £cf it is plain to anyone acquainted with dairy farming that only a small percentage "cf dairy farmers arc liable for the tax. The daily fanning interests cannot expect not to pay towards the revenue of the country, especially in face of the great assistance the dairy industry has received! from the Government! The matter is being taken up by the National Dairy Association, which is circularising its members, and pointing out the justice of the claim made by the Tax Commissioners.