GRADUATED TAXES

Dominion, Volume 4, Issue 1000, 15 December 1910, Page 6

GRADUATED TAXES

' REFUNDS CLAIMED.

EFFECTS OF NEW L4ND LAWSSTATION PROPERTIES, i , 1 Mr.; Justice Cooper conMudedyesterday : the . hearing'of .tho two taxation-cases of ■ the .Whiterock Estate Company,' Ltd., and ■ tlip ilafainanga Estate 'Coin'pany, , Ltd., . .against,the.Commissioner of xsses. Each ofthese, companies'claimed .a refund of '' ihcome tax paid under , protest -opon tho profits of sales'of sheep runs. Thfi'Mafainanga Estate Company,' Ltd., ■ was. i'onned ill IUOG to.tako over the Ma- / raina'nga >Estate, in tho ; Wellington; pro- .' .vincuj'-'fromJ.. S. Handyside, oi Akitio, : : John''.Roberts, 'C.M.G:, of, Dunedin, arid 'foil#'-'others .'.in partnership. ..The compariyj. consisted of tlie same persons and : tour-inore. In consequence (so it' was alleged)..of tho increase ot land tax under the legislation of 1907, the company de..cided'.to sell tho land, and up to June ' 30, 1908; had made an. apparent profit of r . £50,360:105. on sales'of-sub-divisions. On. : this.amount £2518' was paid in income tax .. uDder. protest,. and. the ' object of the action .was to. obtain, a refund of that sum. .: The area of the estate was 36,355 acres and its. land tax. valuo when the company was ; formed was ,£121,000.: • ' The Whiterock Estate, which, is in Canterbury, was brought by Mr. G. D. Green- : -.wood;-'of Amberley, in. 1905. He formed j- a .private company called the Whiterock i: Estate Company, Ltd.; with a capital of £35,000; himself holding .£34,998. Until : March, 1908,'. the estato -was used as a. 1 sheep station. It was. then cut up and .sold,it, a profit 'ot. £52,061. On this /.'amount, .£2650 was paid as'-income tax, 1 'and the plaintiff company Inow claimed a icfurid. The estate comprises 40,608 acres . and 'was brought in 1905 for 4.75,000, in- I eluding £25,000 for stock. .. Much of the argument in both cases ■ turned upon tho question whether the i purchase and sale of land was part of tho "ordinary business", of the. companies within" tho; meiining of. the.Land'end.ln- • . como.Assessment Ac,t, 1908. If such tran's- ; actions come, within "ordinary ~ the profits 'are.' taxable,' but not' other-' wise. . . ■ In the Marainanga ease Mr v J.; Hosking, K.C., with him: Mr:'.. Blair; 1 appeared for /the, plaintiff company:, • ■ Counsel, for. the Whiterock Estate Com.pany, Ltd., were Mr. C. P. Skerrett, K.C., and Mr.- Besivick (Christchiirch). . . . -Mr; W./Salmond (Solicitor-General), :with him Mr." T. -Neave, appeared .for. the ; ! : Commissioner of. Taxes, .'the defendant. in both cases. .•. • . ..-.- , . • Argument for the plaintiffs in both cases was -heard , on, Tuesday,, • and , .the Solicitor-General /replied •on both in one . address','; which'-.-'was not finished when / the. Court..rose on. Tuesday-.-evening. . ■ and Individual. Concluding/his . argument in the Ma- . ■ raining®;. case yesterday morning, -Mr. Salmond . referred back .to his: previous contention, that 'the. words "ordina'ry ' .business" ;have: a. different meaning' according ?as ithey are applied to an in- : /'cdrporated.. company or ,an individual. ■ Had the private partnershipcontinued and sold the- land, there/;.would have /been '.no.' liability to-income'- taxi; -The .case-; for' the - Crown-; -.was'--based'- wholly arid-' absolutely; /.company-- was ;-a,-different'-'peraoh.-' ftom' j ' the shareholders tomfcosingitj' ITlie 'cliuse' j : in ; the'meinorfiidum''df"aK®e'rierit;' iwhich'. : ' ■, , jmwcr j ', tTUe-.-aii'd .' and purpose 1 iexisting", wheri;.' 1 thd /company'. - yras. formed.^ji;siS:;'*v A Curious Position.

!'■ Turning nestfio ithe 'rWliiteMclc ' ca^,; -not, ini thisAiilsCaijce.'^r^i 1 : the /memorandum'-- of;.. asseciatibn',|bf, the cbmpafiy to show that selling- the" land .was.a of :the company. He was, -■however;; entitled to consider the actions of. the company 1 so' -as to; establish what . its .business'was.; , V ■ Hi'S" Honour—remarked- that tlio com- . pany was really Mr. Greenwood, becaiiso 'there'were only two other shareholders, holding jDi;.eaoh.. ' . -.Mr. Salmond:. That is.so,- and the only fn-ay'' of ascertaining ■ the company's in'•tehtions is to .ascertain. Mr. Greenwood's, intentions. .. .. ■.His Honour remarked that Mr. Greenwood's/position; ; if .'it;;' was 'cis/had. been ;'argued, , was a curious ono'. - He had apparently, desired' to evade the land tax, 1 ■and the result of his, action was that -die found himself made 1 to income tax. instead. eq\uty.,was ■ considered,' a,' .person"'who stfooessfully* ■evaded;..land -tax on the ground-that he was' tio.t- liimself,'but. a .company should not b(S''entitled to 'complain if he 'was .Mlled'jiiponvto pay '.income , tax because, ! i©.*wa'Sr a company and riot himself. , '•; ■ Mr.yßeswick: ;Y6u''6ho'uldssay avoided (not. evaded). .■ ;.' ' , Mr./Salmond-. Well, avoided, then. • Questions of Motive. Proceeding, Mr,. Salmond sought to shoyr that/ihe estate:was as - a -'specula-' ; ti6n'-with the object of-selling at a profit. Shortly after it-was- .purchased.'by Mr. Greenjvood,. with tho alleged -purpose of settling his sons on it, he transferred to' . thein jargo interests in the TeViotdalo Es-tate;:v'Then'.'he,sub-divided and sold the. large; profit into his; own- :pocket.. Tho.'pbjectV must havo 'teeli ■t&J s&ll at - a/ profit, not ■. to 'avoid'''taxation' on''it;' - Had' tho latter , been the . object, he would have : given- part; of Whiterock to his- sons, - instead of buying Teviotdale for-them.. ther,-. tho. increased land ''taxation• -on 1 - Whiterock would have been about .£I3OO, whereas ' the profit;.ph ' the.' sale was over; . .£52,000: , 'Was '.'iiot ■ the making of that profit T the"real reason--.of the ['-sale? • ''His Hoiibur: Probably there were mixed reasons.' .. . . ;': Mr;. Salmond-saidTMr.'' Greenwood 'probably .hurried. tho ?ale so as to get.it over before-March 31,' when' it would'have been fori land tax, but that' Was - not", tho dominant motive of the sale. ..When' a.;' man "bought;h/ large .property .and '12 'mphths later' .put it up; for auction.in'small'holdings, it ivas very reasonable to hold that the bought it for the ■ purpose, unless something had -happened .in the interval to changt his mind. ■ Mr. ; Greenwood's two-station properties had a total capital value not far short of a ; quarter of a million, and he had claimed that ho was forced {o sell one of them 'because'of an , additional tax of a ' year,'. ,'-V; '■

"Metaphysics" Objected To, . Mr. SkeiTettobjected-■ to theso figures .and also',said that it seemed to him remarkable' that -an interpretation.-.0f... a taxing statute should involve. these investigations of motives.. .Apparently a liability to- taxation was to . become -a' metaphysical, question: and was not to : Be decided in A'plain-business way.from actual facts.-.: : .'

'.. Mr. Salniond,; by : way , of summarising his argument in.both cases, said that tho Marainanga'. Company was entitled to deal in land, ,and?if-.'that'' wero not so in : tHe memorandum of association, it was so on •the facts; -while -in the Whitorock tase ■the .transaction was; on tho face of it, a speculation, and ..tho estato-was purchased to . sell, at a profit. .

"No Confidence in Your Politicians." Mr. Hosking contended,', in regard to ■ the Marainanga case; that the owners were alarmed by the Land Bill of 190G, which ..was one,of those' signposts or.warnings ■whith'the. Government seemed to like to . set up.- Mr.'T. Roberts'(one of the partners), in a letter to Mr. John Hoberts at that time, said, "1 have lost confidence in your, politicians." ..Mr. John. Roberts, in his reply, said, "You will gather that the new Land' Bill will probably upset i. our proposed sale." His Honour remarked that tho plainstiffs werecertainly not land-jobbers. Whether - they 'came' within ..the . statute was another matter. They were men who decided that the time had come to sell a, property'-whiili they had held for many years. . - Mr. Hosking,/ proceeding, contended =,that, in .respect-: of what -constituted "or- , dinaty business,"- -there; -ivas • no difference between;,an individual and a company. -If- ari 'individual did not- come within, the'operation of Section 71, Sub- . Section (C)—which makes a person liablo to ,-income :tax- on dealings, in land, if such„are' comprised- in. his, ordinary business—neither -would «,company. ,- .. Motive No Test. Mr.' Skerrott, -replying ; v to' Mr,' Salyntind's arguments ' in .regard \ to.. 'the

I Whiterock case, contended that there could bo -110 • possible liability -arising from intention.Suggestions _as to dominant- niotivo "or' subordinate* motive could not be an element - in determining the taxability of a company. His Honour said that, if a company happened to own a piece of: lend au<l it was not part of the ordinary' business; of that company to" deal in land, the fact tliat it chose to sell the land for the purpose ot obtaining a profit did not render it liable to. taxation. Mr.' Salmond.:' I don't suggest that it does. Mr. i Skerrett said the Solicitor-General had argued in effect that th« sale turned, what.was an ancillary power into the main business of tho ..company, 'because, of the motive.of the sale.. 'A- motive was an intangiblo thing,, difficult to prove, and the subject very largely of, metaphysical intjuiry., lie 'submitted that'it never could, be tho test as to whether the ordinary, business of a company comprised dealing in land.

What is "Dealing"? There ■ were three > possible interpretations .of "dealing in , land"—(1) Buying and selling land generally; (2) the operations of a company which from its constitution intended, to pay dividends from the profits of the sale of lands generally, or.of a particular piece of land; (3) the action of a company in holding and selling ,one piece land, for which it. was formed. ; , Ho disputed the' liability of such a company to taxation, but he submitted that the plaintiff in this case did not come within either of tho three definitioiis. There was a . wide distinction between all of them, and a company formed to carry on a trading business—a company which must necessarily cease when such busi ness ceased. The profii realised in the winding up was neither in fact.nor in law a trading profit. That was the strongest ground on which this case could be determined, and it gave the "go-by" to ■ all metaphysical argument about motive. Mr. Salmond's point that Mr. Greenwood had not transferred U'hiterock to his sons was met 1 by consideration of- a father's natural reluctance, to hand over a valuable property to sons who had not had his own experience.- • Mr. Blair asked to amend the claim the..,Maminanga .case, .by adding , intartefc'oir' thViiroiiey; The SolicitorrGeneral .objected. His Honour ruled that such an amendment could not be made without' the consent of, the. defendant. Judgment was; reserved. . - V • \