TAX ON INCOMES

Te Awamutu Courier, Volume 66, Issue 5598, 29 March 1943, Page 2

TAX ON INCOMES

ASSESSMENT METHOD INJUSTICES APPARENT (No. 1) Parliament has adjourned without being given an opportunity to deal with a matter that calls strongly for remedy, namely, the new basis of computation for income tax (says a statement by the Associated Chambers of Commerce of New Zealand). The offending provision is contained in section 5 of the Finance Act, 1942, which alters the former basis for computing the amount of income tax payable by taxpayers who have derived both assessable and non-assess-able income. While it is recognised that there is an urgent need for increased revenue to meet the cost of financing the country’s war effort, the fact remains that the new method of assessment is unduly harsh and inequitable. A number of cases have been brought to the notice of the Associated Chambers where the salary or other earned income of taxpayers affected is liable, in terms of the new legislation, for a combined rate of income tax, social security charge, and national security tax, equal to 18s in the £l. This means that in thees cases only 10 per cent of the salary earned will remain in the hands of the taxpayer as a reward for his personal exertion. Such a position is obviously calculated seriously to discourage private enterprise and effort. In many instances company directors find themselves in a position where it is not worth their while to draw any remuneration for full-time services rendered. ANOMALOUS PRINCIPLE It is true, of course, that the maximum effective rate of 18s in the £1 applies only in those cases (in relation to earned income) where the taxpayer’s non assessable income amounts to, or exceeds, £3700, or where (in relation to unearned income) his nonassessable income amounts t 6, or exceeds, £2500.

On the other hand, however, the anomalous principle involved operates in respect of all taxpayers who derive both taxable and non-assessable income, the only qualification being that the weight of the burden imposed bears with increasing severity as the minimum rate levels—£37oo for earned income and £2500 for unearned income—are approached, as the following examples show:

EXAMPLE (A) *l—Taxable income (earned), £500; non-assessable income (dividends), £5OO. Income tax payable, £l4l 13s 4d. 2—Non-assessable income, £lOOO. Income tax payable, nil. ’"lncome tax payable on last year’s basis of assessment, but with increased war tax rate of 331-3 per cent, £l2O 16s Bd. EXAMPLE (B) *l—Taxable income (earned) £1000; non-assessable income (dividends), £lOOO. Income tax payable, £4OB 6s 2—Non-assessable income, £2OOO. Income tax payable, nil. ’lncome tax payable on last year’s basis of assessment, but with increased war tax rate of 33 1-3 per cent, £325. EXAMPLE (C) *l—Taxable income (earned) £1500; non-assessable income (dividends), £l5OO. Income tax payable, £BOO. 2—Non-assessable. income, £3000; income tax payable, nil. *lncome tax payable on last year’s basis of assessment, but with increased war tax rate of 33 1-3 per cent, £612 10s. EXAMPLE (D) *l—Taxable income (earned) £2000; non-assessable income (dividends) £2OOO. Income tax payable, £1309 3s 4d. 2—Non-assessable income, £4000; income tax payable, nil. tax payable on last year’s basis of assessment, but with increased wlar tax rate of 33 1-3 per cent, £979 Ils Bd. EXAMPLE (E) *l—Taxable income (earned) £3000; non-assessable income (dividends), £3OOO. Income tax payable, £2284 3s 4d. . 2 —Non-assessable income, £6000; income tax payable, nil. ‘lncome tax payable on last year’s basis of assessment, but with increased war tax rate of 33 1-3 per cent, £1754 Ils Bd. (To be concluded)

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