THE INCOME TAX.

Southland Times, Issue 17757, 7 September 1917, Page 4

THE INCOME TAX.

Some figures which have just been published make the method of assessing the Income Tax fairly clear. We do not suggest that every ratepayer will be able from these figures to work out the amount of his tax, since at the best the calculation is neither simple nor easy. What the taxpayer wants to arrive at in the first place is his exemption. On all incomes up to £6OO the usual exemption of £3OO is allowed. The exemption of life insurance premiums up to £SO also stands. In addition where the taxpayer’s income does not exceed £425 he has the right to increase the exemptions by £25 for every child totally dependent on him. A man with £4OO a year, three young children, and life insurance premiums amounting to £2O per annum would claim exemption in the first place of £3OO, in the next place of £75 for his children and finally of £2O for life insurance premiums. His taxable income would be £5, at the minimum rate of 1/3 in the £. As soon as the income rises above £6OO the exemption allowed on it diminishes. For every £1 of income above £6OO the exemption is reduced by £l. Thus if the income is £625, £25 is taken off the exemption reducing it to £275. At £7OO the exemption is £2OO, at £BOO the exemption is £IOO, at £9OO the exemption disappears altogether, and the only permissible deduction is the amount paid in life insurance premiums with a maximum of £SO. Having ascertained the amount of his taxable income the taxpayer then wants to know the rate of tax. The rate of the ordinary income tax is 6d in the £. to which is added one two-hundredth of a penny for every £1 in excess of £4OO assessable for the purpose of this tax, i.e., the net income excluding all exemptions. In addition to the ordinary income tax there is the war tax, and in this case the exemption of £3OO is general, and is not affected by the amount of the income. The rate of the tax is 6d, with an additional one two-hundredth of a penny for every £1 in excess of £4OO of income assessable for war tax (a gross income of £700). When the war tax is so calculated 50 per cent, is added to it and the sum is the total war tax. The war tax and the ordinary income tax added together give the total income tax. As an example take an income of £BSO. The amount being £250 in excess of £6OO, the exemption of £3OO is reduced to £250, leaving £SO. Assuming that the taxpayer pays £3O in life insurance premiums the total deduction is £BO, leaving a taxable income of £770. The rate is fixed by the excess of the income over £4OO. This excess is £370. One two-hundredth of a penny for each of these pounds is 1.85 d. This amount added to the starting rate of 6d gives the rate of ordinary income tax on £770 at 7.85 d or £25 3s 84d. For the war tax the exemption, as explained, is not reduced and the deduction is £3OO, leaving a taxable income of £550. This amount exceeds £4OO by £l5O, and one two-hundredth of a penny for each £1 is Jd. The rate of the war tax is, therefore, 6Jd or £ls 9s 44d. Add the special tax of 50 per cent, and this amount is increased to £23 4s OJd. This amount added to the ordinary income tax of £35 3s Bld, gives the total tax on £BSO as £4B 7s 9fd. The tax on any income up to £6400 can be worked out on these figures. As soon as the income exceeds £6400 the calculation of income tax is simplicity itself, since at £6400 the maximum rates are reached, bringing the total taxation up to 7/6 in the £, and the only exemption is the amount of life insurance premiums not exceeding £SO.