DEFERRED MAINTENANCE

Te Awamutu Courier, Volume 68, Issue 5945, 19 May 1944, Page 4

DEFERRED MAINTENANCE

HOW IT WORKS The Government made a laudable decision in providing for tax-free, deferred maintenance reserves to be set aside by farming and all other business undertakings of New Zealand (says the farming editor of the Dominion). This is a’ step which will be a decided aid to rehabilitation and also assist the post-war economic well-be-ing of the country by providing means whereby farming and othei business can put itself in good order. Certain main points of the policy require mention. One particularly to be appreciated is that it is retrospective, applying to the year ended 31st March last or a later date. Many farmers, for instance, end their financial year in May or June.

About the one criticism heard ol the measure is its minimum figure of £lOO. That, perhaps, could well have been lowered to £5O. but a limit must be placed somewhere, or the Taxation Department would have an enormous added burden. Having regard to all points, £lOO seems reasonable. As to how the proposal works, lei an example be given. Presume a farmer normally spent £4OO on property maintenance, but that last year, due to shortage of labour and supplies, he was able to spend only £2OO. Then his balance of unexpended or deferred maintenance would represent £2OO also. He would lodge that sum’ with the Government, as a non-in-terest-bearing deposit. The Commissioner of Taxes, on being satisfied that the amount was reasonable, would allow the deduction of £2OO from taxation returns. Taxation would be saved at 2s Gd in the £ for social and national security charge, and also at approximately 3s 6d in the £, which is about the minimum rate of income tax, so the amount saved would be 6s in the .£ on the £2OO deposited—that is, £6O less tax to pay. There is some loss to be set against this in that interest is not paid on the sum set aside. Presume it lies with the Government for three years, and its worth is assessed at the usual overdraft rate of 4-i per cent. Then the accumulated interest lost would be about £3O. That does offset considerably the £6O taxation saving. There would, however, have been, say £lO, of that interest taken in taxes. Of course, in the case of higher incomes, where 10s in the £ taxation is common and up to 18s 6d in the £ is not unknown, there is a most decided benefit under this policy. The deposit made must lie with the Government for 12 months at least. Most likely in the majority of cases it will for two, three, or foui years. When it is withdrawn it becomes an addition to the gross income of that year-to-be, and unless maintenance expenditure is expanded proportionately, the reserve would simply mean an addition to that year’s income, and hence becomes taxable at whatever rate was then prevailing. The taxation saving can be effected only by then spending the money brought out of “ cold storage,” as it is certainly to be assumed' will be done t>