DEATH DUTIES

Otago Daily Times, Issue 23529, 18 June 1938, Page 12

DEATH DUTIES

PAYMENT BY LOAN MONEY NOT LIABLE FOR INCOME TAX (Peb United Press Association) WELLINGTON, June 17. The Court of Appeal delivered judgment in the case of the Public Trustee (as executor of the Robert Hannah estate) v; the Commissioner of Taxes. The question considered by the court was whether, interest payable on moneys borrowed by the Hannah estate to pay death duties was a deductible item in arriving at the amount of income assessable to tax. The court held that interest on so much of borowed money as was used in producing assessable,income is deductible.

In a lengthy judgment, the Chief Justice (Sir Michael Myers) expressed the view that sub-section (2) of Section 80 of the Land and Income Tax Act, 1923, should read as being subject to concessions made by paragraphs (H) and other paragraphs of sub-section (1). His Honor said: “ Here death duties were not a voluntary debt; they were the debt of an estate which was charged upon the estate, and which the trustee was compelled to pay. The Death Duties Act authorises him to borrow money upon security of assets of,an estate in order to enable him to pay duty. It was not, therefore, voluntary expense incurred by the estate, as the Privy Council held payment in Ward and Company’s case to have been. Here also money was borrowed in order to prevent, a reduction of income. Borrowed money was not employed, to quote , the words of Mr Justice Isaacs, Tor purposes alien to or independent of property, and to use the language of Chief Justice Knox, the loan_ here was instrumental in or conducive to the production of assessable income. It cannot be said that debt was incurred for a purpose wholy unconnected with the production of the assessable income of the estate, On the contrary, it was incurred for the very purpose of maintaining the income of the estate and preventing its reduction.’* ■ # ’■ For the reasons stated in his judgment his Honor said he found himself unable to agree with the judgment of the court below. Inasmuch as the money borrowed was employed in the . production of both assessable and non-assessable income, the answer he would make to the question asked was that, as a matter of law, part of the interest was deductible under paragraph 8, Section 80, sub-section (1). The quantum of such deduction was a matter of fact, and was for the commissioner to decide. No difficulty arose in the present case because the parties agreed to the basis of deduction.

Mr Justice Blair concurred in the Chief Justice’s judgment, and Mr Justice Callan wrote a separate judgment agreeing with it Mr Justice Northcroft, however, dissented, expressing the opinion that the exemption claimed under sub-section (1) was not available. Costs on ‘he lowest scale were allowed the appellant.