The Dominion. TUESDAY, JULY 4, 1916. THE ASSESSMENT OF WAR PROFITS

Dominion, Volume 9, Issue 2814, 4 July 1916, Page 4

The Dominion. TUESDAY, JULY 4, 1916. THE ASSESSMENT OF WAR PROFITS

The details of tjio Government's proposals for the assessment of war profits now available go to show that many of the objections raised to the method of assessment indicated in the Budget have been met in a,reasonable spirit. • There is still room, however, for criticism and advice. It will be noted that the original proposal for assessing war profits—that is,, to treat anything in excess of the average profits for the three years immediately preceding the war 'as war profits—has been amplified. This was necessary in order to meet the cases of businesses affected which had not been estal> lished three years prior to the war, and also in order to minimise the possibilities of injustice which certainly would have arisen had a fiard-and-fast rule-, been laid down. Provision'is now made for ascertaining what is to be known as tho "standard income" by cither of three means, namely,' by taking the average income of three years preceding the war; the average of two years; or the income of one . year. Any income in exoess of the "standarc! income" so.ascertained is to bo treated as war profits, and where the total, income is above £300, 45 per oent. thereof will be collected by the State. But should neither of the three methods stated provide an equitable means'of assessment, then the "standard income" is to be based on a profit of 6 per cent, on the capital invested in the enterprise, allowance- up to £500 being made as a fair remuneration for tho personal exertions of the owner. That is to say, any profits above G per cent.-, plus tho allowance made for the owner's personal exertions, [will be treated as war profits. The taxpayer is not to be permitted to choose the particular method of assessment that suits him best, but 'the Commissioner of Taxes apparently will decide the matter, always having'in mind that the G per cent, basis can only be adopted where the "standard income" cannot be ascertained by the other means provided. In its broad aspects little fault can be found with the. method of assessment now provided. There,is room for differences of opinion, however, as to tho methods proposed of ascertaining the capital value 0/1 which the 6 per ccnt. "standard in-conic" is to be based. And information will no doubt be sought as to how the G per cent, profit is reached; that is to say, the allowance that may be made for depreciation, bad debts, etc. _ A clause of the Bill limits tho writing, down of stock-in-trade to the average of the three years preceding the war, and presumably this will be the basis adopted throughout. Thero appear to be possibilities of confiscation of capital as well as income in tho clauses which affect the farming community. We have not had opportunity to • analyse tho provisions of the Bill closely, but it seems from the brief attention we have been able to give to it that in tho case of a farmer selling off his stock —which is a part of his capital—he is liable to have to pay war-tax on the realisation of his capital as well, as on his income. For instance, assuming that ho starts the year, with 1000 head of stock and ends it with only 750, obviously tho whole of his receipts from the sale of his stock cannot bo regarded as profits. The amount required to bring his flock or his herd up to tho value at which it stood at tho beginning of tho year should surely bo deducted from tho year's receipts when assessing tho

profits on the year's operations. It may be that this contingency is provided against; if not, Parliament should certainly see that tho omission is remedied. Provision has been made to ensure that In cases whoro there have been losses in any form of business in the years preceding the war duo allowance will be made to arrive at a fair estimate of what would have been a reasonable "standard income" under normal conditions, and a very real possibility of injustice has thus been removed. Fluctuations in capital are also provided for, so that a firm, which has made ; increased profits through increasing its capital and extending its business will not be assessed on the basis of its earlier capital and profits; and tho contingency of reduced capital is also covered. These are proper safeguards and will meetwith general approval. Apparently the high rent question is being tackled in tno Finance Bill instead of in a separate measure. The proposal is that where landlords havo increased their rents since March, 1914, such increase shall be treated as war profits and 45 per cent, go to the-State. Where there has been an increase in the capital expenditure on the land or building, allowance iis to be made for a 6 per cent, return before the war tax is imposed. A still more startling proposal is that applying to rents generally, it provided that all profits therefrom in excess of 6 per cent, on the capital value shall be deemed war profits. Wo very much doubt whether 6 per cent, would be regarded as a fair return on house property unless provision is first made for depreciation; and before this clause is passed members will require to oxamine it closely. Those who havo advanced money at interest will also find themselves severely dealt with. Wherever income derived from investments by way of mortgage of land or chattels has been added to by any increase in the rate of interest since March, 1914, such excess shall be deemed war profits; and, moreover, all income derived from investments on mortgage at a rate of interest in excess of G per cent, per annum is to bo treated as war profits and taxed accordingly. The Bill is a very sweeping one and will call for careful examination. With the principle of tho taxation of war profits practically all are in agreement, but that does not relieve Parliament of its duty to see that in applying the principle proper care is taken to safeguard against injustice.