PREMIUM ON LOAN CONVERSIONS

Otago Daily Times, Issue 22392, 13 October 1934, Page 5

PREMIUM ON LOAN CONVERSIONS

i ,■; TO-THE EDITOR Sir, —I received from the Commissioner of Taxes a notification that the premiums on the conversion of Government stock up to" March 31, "1934, were not liable for income tax. and this leads me to inquire what is this so-called premium. I have before me the conversion scheme of one of our local bodies and I find that the amount of the so-called premium is based upon the time the debentures to be con> verted have to run and upon the rate of interest on them. Under the national adjustment tax the current interest was to be reduced by 20 per cent., but not to be lower than £4 5s per cent. Upon conversion no premium was payable unless the interest exceeded £4 5s per cent., but if the interest exceeded £4 5s the difference multiplied by the currency was apparently to be reduced to a cash value and could either be added to the debenture or be paid in cash. In the case of the Government stock this adjusted interest was added to the new debentures or stock, but sortie local bodies paid in cash and some gave debentures for it. For example, in the list I have before me, the date of conversion was October I, and the unconverted debentures were due in ex&ctly one year's time. The original interest was 5J per cent, reduced by 20 per cent., equal to £4 8s per cent, or 3s per cent, more than the conversion interest. Now, this public body will pay you the actual cash value for this 3s due a year hence, and accordingly pay in cash'2s lid per cent, in settlement. Again,- debentures due eight years and six months ahead; at 5i per cent., reduced to £4 Bs, receive the present cash value of £1 Is per cent, for eight years and six months interest at 3s per cent., equalling £4 5s 6a. It may be said that the interest added to the debentures was capitalised,, but that does not alter my contention that it was interest. I should • like to hear the opinion of some public accountants. —I am, etc., Fellow N.Z. Auditors and Accountants' Society. Dunedin, October 12.. .