TAXATION AFTER THE WAR

Southland Times, Issue 25747, 10 August 1945, Page 6

TAXATION AFTER THE WAR

Adjustments Next Year SPECIAL ALLOWANCE FOR DEPRECIATION (Special) WELLINGTON, August 9. “War taxation presses heavily upon all sections of the community, and it is recognized that it leaves little to cover the risks inseparable from undertaking new ventures,” said the Minister of Finance, Mr Nash, in his Budget speech in the House of Representatives tonight. ‘“The time has not yet come for a general review of taxation, for we still have heavy costs of war and rehabilitation to meet. Nevertheless, this is the time when plans and preliminary arrangements should be made for expanding production as soon as manpower and materials are available. Those contemplating new industrial activities are naturally wondering what will be their postwar taxation position. To assist and encourage them the Government proposes to make certain adjustments in the basis of taxation to become first effective in respect of the income earned during next financial year. DEPRECIATION ALLOWANCE “It is proposed to provide for a special depreciation allowance of 20 per cent, of the cost of new plant and buildings in such cases spread over a period of five years, and to allow as a deduction in assessing income tax the cost of royalties, research and patent rights.”

Mr Nash quoted figures to show the effect of the special allowance of 20 per cent. He went on to say that the ordinary depreciation rate on plant was 71- per cent, on the diminishing value, and the ordinary depreciation rate on buildings was 1 per cent, in respect of reinforced concrete, Ig per cent, in respect of brick, stone, or concrete walls and 2| per cent, in respect of wooden frame. In the case of buildings, the depreciation was calculated on the original cost. The table which he had read showed that the normal rate of 7g per cent, diminishing value had been allowed on plant, with an additional special depreciation of £4OOO in each of five years (that was, a total of £20,000, being 20 per cent, of the cost of plant, £100,000). As regards buildings, the table showed 1 per cent, on the original cost, plus a further £4OOO for each of five years, making a total of £20,000 special depreciation, equivalent to 20 per cent, of the original cost of buildings. TAXATION TO BE REVIEWED In the ordinary course, if the special depreciation allowance were not granted, the plant costing £lOO,OOO would be written down to a residual figure of £67;721, as compared with the residual figure under the new arrangement of £50,501. In the case of buildings, the normal residual figure would be £95,000, as compared with £75,000 in the table. The incidence, of taxation in general was under examination, and it was proposed during the year to take steps to remove any proved injustices or anomalies. An agreement had recently been concluded between the United Kingdom and the United States Governments for the purpose-of eliminating “double” taxation. A similar agreement was contemplated between the United Kingdom and New Zealand Governments whereby English companies establishing branch factories in New Zealand would be taxable in the United Kingdom on the total profits, subject to a credit for tax paid in New Zealand on the New Zealand profits. A similar principle would apply in converse cases. This would enable new industries, with the advantage of overseas patent rights, formulae and key personnel to be established in the Dominion.