TAXATION PROPOSALS

Otago Witness, Issue 3470, 14 September 1920, Page 6

TAXATION PROPOSALS

LAND AND INCOME TAX BILL. IMPORTANT PROPOSALS. (From Oub Own Coebespondent.) WELLINGTON, September 7. When introducing the Land and Income Tax Bill to-night, Mr Massey said it proposed some very important changes. The first point to which he would call attention was the proposal to relieve mortgagors to a certain extent from a grievance that they had suffered for a long time. He had been unable to give full relief, and had not gone as far as he would have liked. He referred to the grievance of T;he man who had a mortgage on his land and who was compelled to pay land tax on his debts. The position under the present law was that a man with mortgaged land was exempt from taxation up to £ISOO unimproved value. This £ISOO gradually disappeared until it went altogether at £3OOO unimproved value. The proposal in the new Bill was that the man with land should be granted complete exemption to £4OOO, and then the exemption would disappear on a sliding scale at £BOOO. This gave a considerable advantage in favour of the mortgagor. He did not doubt that many people would consider that the Government had not gono far enough. He had cone as far as the Treasury, the Finance Committee, and he himself thought advisable. The next proposal of importance in the Bill was in clause 6, and referred ( to unimproved land which was capable of improvement. Members were aware that land of this kind was beiner held in an unimproved state in large blocks in various parts of New Zealand.- The Bill was telling the owners of such land that t if they did not commence to improve their holdings they Tflfciuld have to pay an increased rate of tfcation, at the rate of 50 per cent, over the

ordinary taxation. Section 11 of the Bill provided for an increase of the exemption from income tax in the cases of men with families. The present exemption was £25 of income for each-child. The Bill proposed to double that exemption, thus making it £SO for each child up to the age of 18 years. If the taxpayer happened to be maintaining his mother an exemption of £SO would be allowed. There were also exemptions for insurance and superannuation. He thought that the exemptions would be regarded as fairly general. The Bill discriminated for the first time, as far as he could recollect, between earned income and unearned income. For the purposes of taxation the exemption in ttie case of earned income' would disappear at £2OOO per annum. Above that level earned and_ unearned incomes were to be treated alike. The advantage in the case of the earned income would be 10 per cent. Section 18 of the Bill dealt with shipowners, who had escaped income tax to some extent in the past. If a shipping company, with its headquarters in New Zealand, had steamers trading and earning profits between ports outside New Zealand, it would become liable under the Bill to pay income tax on income so earned. An alteration was being made in the system of taxing income from debentures. The holders of debentures escaped some part of their fair share ot taxation. Under the present law they were taxed on income from debentures at a flat rate of Is in the pound, plus a war tax of Is 6d in the pound, making a total of 2s 6d in the pound. The Bill that this income should be taxed in the ordinary way. The land tax was being amended where the taxable unimproved value of the land did not exceed £IOOO (the exemption being £500). The land tax would be at the rate of Id in the pound. The rate was to be increased by graduations, and he believed that the aggregate amount produced by the tax would be increased. The highest rate of taxation was reached under the

r present law in the cast* of land having an unimproved value of £192,000. The Bill proposed that the highest rate of taxation should be reached when the unimproved value of the land amounted to £138,000. This meant, of course, that an increased number of estates would pay the minimum tax. No increase was being made on estates up to £IO,OOO unimproved value. There was a slight decrease in the case of estates below £9OOO unimproved value. The old rates and the new were. about equal at £IO,OOO unimproved value, and there was no serious increase in taxation until a value of £30,000 was reached. From £30,000 up to £138,000 the rate was increased. The Bill amended the incidence of the income tax. The graduations stopped at present at £6400. The Bill proposed to continue the graduations to £IO,OOO. The payment of income tax would not stop at 7s in the pound. There would be 20 per cent, to be added in some cases, in addition to the 10 ,J per cent, allowed off in the cases of earned j incomes. Mr Massey added that he re- | garded the Bill as a great improvement on j the existing law. It did away with various j anomalies. He had not aimed at increasj ing the revenue of the State from land tax i and income tax, but he had allowed a margin, and there would be no reduction in the revenue. The Bill provided that trading departments of local bodies, and also the Government trading departments, should pay income tax in the same way as the businesses with which they were competing. THE BILIi EXPLAINED. The statement made by the Prime-Minis-ter in introducing the Land and Income Tax Bill, while if dealt with the principal changes involved, was not able to include a number of other points of considerable j significance. Seotion 27 of the Bill makes : the following provision in regard to the payment oi income tax by racing clubs:— "Notwithstanding anything to the contrary

in any Act, income tax shall not be deemed to be payable by .any racing club prior to the year of assessment, commencing on the Ist of April, 1920." The term racing club is to include hunt clubs and polo clubs. By the Act of 1917 land tax was to be levied on the total unimproved value, with the saving clause that where the value did not exceed £ISOO there was an exemption for £SOO of that sum, and where it exceeded £ISOO there was an exemption, diminished as the A'alue increased, so as to leave no exemption when the value reached £2500. The Bill gives exemption on £4OOO where the total unimproved value does not exceed £6OOO. Where the value exceeds the latter sum the amount exempted from taxation is diminished in such a ratio that the exemption disappears altogether when the unimE roved value reaches £BOOO. In cases of ardship the commissioner was empowered to allow a special deduction for taxation purposes of £2OOO where the owner's income did not exceed £2OO per annum. The limit of income in this case is to be raised to £3OO, and the limit of exemption to £3OOO. The special taxation of unimproved land referred to by the Prime Minister is not to become effective before the financial year commencing on April 1, 1923. Unimproved land is defined as land_ on which, at the beginning of the financial year, there are not improvements equal to £1 per acre or to one-third of the unimproved value, whichever shall be the less. This provision of the Bill is not to apply to land situated within a borough. It is to apply separately to all lands of a taxpayer forming one continuous area, or separated at their nearesf. point 3 by a distance not exceeding three miles in a straight line. For the purposes of this section all exemptions from taxation are not to apply to land of which the taxpayer has been the owner for three vears or more. Three of the complete exemptions from income tax granted by "The Land and Income Tax Act, 1916," are entirely abol-

ished. These are—(l) The income of a local or public authority other than that received in trust; (2) the incomes of cooperative butter and cheese companies; and (3), income derived by a non-resident from debentures issued by the Government or any local body, and payable outside New! Zealand. In calculating the income of butter and cheese companies for taxation there is to be deducted the amount paid to the suppliers for the actual supply of milk to the companies. The taxable income of foreign insurance companies carrying on business in New Zealand is defined by thei 1916 Act as being the income derived from investments of any kind in New Zealand. This is extended by the addition of the income derived by investments made abroad on behalf of the New Zealand branch.

The schedules show that the rates shall be levied:—(a) "Land tax one v penny in the pound; where the value exceeds £IOOO the rate is to he increased by one twenty-thousandth of a penny for every pound in excess of. one thousand, but so as not to exceed seven and seventeentwentieth pence in the pound. The whole sum to be paid by way of taxation is then to_ be surcharged by thirty-three and onethird per cent, of itself, (b) The income derived by the taxpayer from debentures, as described in section 112 of "The Land and Income Tax, 1916," is to pay at the rate of 3s in the pound. It is provided earlier in the Bill that if, on the graduated scale, the taxpayer would have to pay more for his income from debentures (should that income have come from another source) than the company issuing the debentures actually pays as his agent, his income from debentures shall be further taxable as ordinary income, to make up the difference. For ordinary income, other than that derived from debentures, the rates are to* be Is in the pound on taxable income up to £400; between £4OO and £6OOO it is to be Is in the Pound, plus one-hundredth part of a penny for every pound in excess of £4OO. On an income of over £6OOO it shall be 5s 8d in the pound, plus one two-hundredth part of a penny for every pound in excess of £6OOO, but shall not exceed 7s 4d in the pound. This is plus a surcharge of 20 per cent.

THE .AMENDMENT BILL. WELLINGTON, September 8. •t>-ii -k. anc * -Bill, which was introduced in the House of .Representatives on Tuesday night, was circulated to-day. It contains several amendments in addition to those already summarised. The Commissioner of Taxes ha s power at present to make a special deduction from the unimproved value in respect of land tax where the taxpayer is a widow with dependent children. The maximum deduction is now being increased from £3500 to £4OOO. The law relating to the taxation of companies with the same shareholders is being made more severe. Companies are to be deemed to consist substantially of the same shareholders if not less than one-half of the paid-up capital cf each of them is held by or on behalf of the shareholders in the other. Land tax and income tax will then be paid as if the companies were joint concerns, subject to certain adjustments. The important amendment is the substitution of "one-half" for "three-quarters," the proportion mentioned in the present law. The exemption of £SO allowed in respect of a child of a payer of income tax applies only to earned income. This exemption has been increased from £25 of assessable income, and the age of the children covered by the exemption has been raised from 1.6 years to 18 years. The present law allows limited exemptions of income in respect of insurance' premiums and superannuation payments. The Bill withdraws the old limits and provides that the deductions shall not exceed in the aggregate 30: per cent, of the earned income. .' Earned income includes all salary, wages, bonuses, and allowances and all other income derived from any source by_ a taxpayer (not being a company or a public or local authority) by reason of his personal exertions. Income in excess of £2OOO a year is not to be deemed to be earned income.

The penalties for failure to pay income tax within the specified period are being leduced. The present law provides that tho addition to the tax shall be 10 per cent, after 21 days, 12* per cent, after three months, and 15 per cent, after six month_s The amended increases are 5 per cent._7£ per cent., and 10 per cent, respectively. The addition of 20 per cent: to the income tax assessed at the schedule rates applies to all taxpayers. The reduction of 10 per cent, to be made in respect of earned income is to be made after the 20 per cent, has been added. The new land and income tax Bill makes the trading departments of local bodies and of the Government liable to pay income tax.