THE WAR TAXES

Dominion, Volume 9, Issue 2814, 4 July 1916, Page 6

THE WAR TAXES

HOW EXCESS PROFITS ARE ASSESSED

THE "STANDARD INCOME"

OTHER FINANCIAL PROPOSALS

AND THE BABY BONUS

Tho Finance Bill embodying all the Government's financial and taxation proposals as outlined in the Bill was introduced by Governor's Message in the House last night. , _ . Part 1 of the Bill makes provision for the imposition of the land tax and income. tax in tho ordinary way, with the exceptions that the mortgage tax is omitted and the income tax is increased by 5 per cent. This part provides also for the exemption from absentee graduated land- tax of all persons who are absent from New Zealand on war service. The 45 Per Cent. Impost. Part 2 of the Bill deals with the assessment of the tax of 45 per cent, on excess profits. In defining the liability of the taxpayer the Bill does not make it a condition that to be assessable these excess profits must be due to the war. The taxpayer is made liable even though the increased profits from business have nothing to do with the war. The excess profit's tax is-to be levied by way of income tax, and it is to be at the rate of 45- per cent, of the excess profits which are. included /in the assessable income derived by the- taxpayer during the income year ended on. March 31, 1918. Excess' profits are defined as the amount by which the assessable income of a taxpayer for the year ended-March 51, 1916, exceeded his "standard income;" The Methods of Assessment. _ For the purposes of the Act standard income means, in the discretion of the taxpayer; (a) His average yearly assessable income for tho'three years ended on March 31, 1914;.0r (b) His average yearly assessable income for ajiy two of tho said three years: or (c) His assessable income for any one of the said three years; 'or , (d) A sum-equal to 6 per cent, of the amount of the capital employed by tho taxpayer, in the .production of his income, as at[ April 1, 1915, together' with such additional sum (not exceeding fivo hundred pounds in any case) as the Commissioner deems just and reasonablo as remuneration of the personal exertion .of the taxpayer during the inoome-year in theproduetion-of bis income. Provided that in all cases where, in the 'opinion of the Commissioner, the standard income cannot be ascertained in the manner referred to in paragraph (a) or in paragraph (b), or in paragraph (c), it shall be ascertained in the manner referred to in paragraph (d) hereof. Special Cases. If the taxpayer . fails, within two months after the passing of tho Act, or within two months after the date of the completion of his annual - balance, to make a roturii showing his standard income, the. Commissioner shall determine tho standard incomc in accordance with such ono of the paragraphs set forth abovo as he thinks fit, and the standard income so determined by tho Commissioner shall for all purposes bo deemed to be the standard income within tie meaning of the Act. For the purposes of paragraph (a) tho capital employed by the taxpayer in the production of his income shall be deemed to be tlfo differenco between the value of his assets employed in the production of .his income and the amount of his liabilities incurred for tlio purpose of producing his income, as on April 1, 1915. But in tho discretion of tho Commissioner the assets of a taxpayer may be deemed to include any leasehold land used by the taxpayer for the production of bis income. IIT any such case tlio rent paid for the land during the year of assessment shall bo added to and deemed to form part of tli® assessable income of the taxpayer for that yoa.r. Assets and Liabilities. ( The following provisions describe how the valuo of the assets and liabilities are to be determined:— "For the purpose of ascertaining tho value of tho assets and the amount of the liabilities of any taxpayer as on April 1,. 1915, the Commissioner may, If. he thinks fit, accept the valuo of the assots and the amount of tho liabilities as appearing in any balance-sheet furnished to him by the taxpayer, or ho may require the taxpayer to furnish a statement as to the said value and amount, and may also require from tho taxpayer such other information' as ifa deems necessary. "Notwithstanding anything in the pre. ceding section,-for the purpose of determining tho value of the assets of a tax. payer as on April 1, 1915, in any case where the balance-sheet of the taxpayer is not accepted for that purposo by tho Commissioner, 'the following provisions shall ,apply i,— "(a). Tlio value of any land included in sucili assets shall be deemed to be tho capital value of that land as appearing on IJie district valuation roll in force under tho Valuation of Land Act, 1908, on April 1, ' 1915. "(b) The valuo of any live stock or stocb-in-trade of the taxpayer shall'be the value shown as on April 1, 1915, in the return of incomo (if any) mado by the taxpayer under the Land and Incomo Assessment Act, 19fl», and in any ease whero tho value of tlio Jivo stock or stocfc-iri-trade is not so shown, shall bo such. value as the Commissioner' Way determine to be tlio.valuo of sTioft live stock and slock-in-trade on April 1, MR.

"(f) The ™lue of all oilier assets shall Imi their value as on April 1, IMS, as S»termined bv the Commissioner, but not exceeding in -any case tlie cost of such assets to the taxpayer. Earnings and Capital. Tho following special provisions are to apply lo eases in which tlio capital at the, commencement of tho income year is ureiiter or loss than the capital for tho year or years with reference lo which tho standard incomo is computed. Where the amount of ilia capital employed by the taxpayer in tlie production' of liis income as at April 1, 1915— (a). Is greater than the average amount of I'lio capital employed by the taxpayer during Hie Ihree years ended on March 31, 1914 (in cases where the standard incomo is ascertained under paragraph (a) above), or

(b) Ts greater than tho average amount of tlio capital employed by the taxpayer during the two of (hose years with referonce to which his standard income is computed (in eases where the standard income is ascertained under paragraph (b), or (eV .Is greater than 'the amount of capital employed during (he year in which tho standard income is derived (in cases where tho standard income is ascertained under paragraph (c),

lliero shall t.o added lo and deemed to form part of the standard income an (imouiit equal to six per centum of the difference between the capital as at April •1, 1915, and the capital employed in the production of 'the standard income, and cxcess profits duty shall be chargeable accordingly. Where the amount of the capital employed by the taxpayer in tho production of his income as at April 1, 1915—

(a) Is less than the average amount of tho capital employed by tho taxpayer during tlie threo years ended on March 31, 191J, in eases where tho standard in-

oome is ascertained under paragraph (a); or (b) Is less than the average amount of the capital employed by the taxpayer during the two of those years with reference to which the standard, income is computed, in cases where the standard income i 9 ascertained under paragraph (b); or (c) Is less than the amount of capital employed during the year in which tno standard income is derived, in cnscs where the standard income is ascertained under paragraph (c), there shall be deducted , from and ba deemed not to form part of the standard income an amount equal to 6 per cent, of the difference between the capital as at April 1, 1915, and the capital employed in the prodnotion of the standard income, and excess profits duty shall be chargeable accordingly. If Losses are Made. In any case in which the Commissioner is satisfied that during the aggregate period of three years ended on March at, 1915, a taxpayer carrying on any business the profits of which would have l,een assessable for income tax if the Land and Income Tax Act, 1916, had been then in fore© has incurred a loss in that business, the Commissioner shall in an assessment of excess profits duty reduce the amount of tho excess profits by suoh an amount as is sufficiout to make good that loss. Taxing Banks. For the purposes of this part of this Act the assessable income of a banking company for any year shall bo-deemed to "be or to have been an amount bearing the samo proportion to its total income (whether derived froni New Zealand or elsewhere,.and whether assessable in New Zealand or not) as the average of its New Zealand assots and liabilities for the four quarters of that yoar,_ according to the sworn statements published in the Gazette, bears to its total assets and liabilities according to its balance-sheet for that year. t Increased Interest and Rent. Tim following provisions apply in respect of income derived during the income year from mortgages or from rent of land. ,

In the' case of such income derived from investments by way of mortgage of land or chattels, such inoome shall bo deemed ta be excess, profits in so far as it is derived from any increase in- the rato of interest since March 31, 1914 (in tho case of moneys invested on that date),- and income so derived from other moneys shall be deemed to bo excess profits in so far as it is derived from a rate of interest in excess of six per centum per annum. In the vase, vt such income derived from rent of land or buildings, such inoomo shall be deemed to be excess profits in so. far 119 it is derived from any increased charge for rent since March 31 (in tlio case of land or buildings let 011 that date); and in tho case of all other land or buildings shall be deemed to be excess profits in- so far as it exceeds a return of six per centum on. the capital value of such land or buildings;

Provided that in the case of land or buildings let on March 31, 1914, income derived from an increased charge for rent shall be deemed to bo excess profits only in so far as it ia in exe'ess of any increase necessary to ensure a return of six per centum on any additional capital expended since that date on the. property from which the income is derived. Depreciation. In computing the assessable income of a taxpayer for the purposes of this part of this Act, no deduction shall bo allowed for depreciation from the stock-in-trade held on March 31, 1916, in excess of tho average of tho deductions (if any) made I by the taxpayer for depreciation from the stock-in-trado hold on March 31 of I each of the years 1912, 1913, and 1914 respectively ; and, in any other case, no deduction, shall be allowed for depreciation of stock : in-trade in excess of such amount as the Commissioner thinks reasonable. Cases of Hardship. i "Where, in the opinion of the Commissioner, tho payment of tho excess profits duty on tho date fixed for the payment thereof or the payment of such duty in one sum would cause serious hardship, ho may allow such time arid terms for payment as he deems reasonable. In every case in which the Commissioner extends the time for tho payment of excess profits duty he shall cause a record of his action, with the reasons therefor, to be kept, and shall forward to the Minister of Fipance, without disclosing, the names of tho taxpayers, a report of such cases for. presentation to ment. Salaries and Wages Not Assessable. Salaries and wages shall not be chargeable with excess profits duty; For tho purposes of - this section tho term "salaries and wages" includes any bonus, gratuity, or allowance given or allowed to a taxpayer in respect of his ' services, but does not includo commission or sharo of the profits of any business or sums computed by reference to such profits. „ In every caso the .exemption of JMOO of incomo is allowed, ,but as the income to Ix 3 assessed is that- for .1915-16, no special deduction to be provided for in tho Land and Income Tax Act, 1916, are to be made. Raising of Loans. Part !1 gives the' .Minister of Finance authority for raising a twelve million loan. This money or any portion of it may be raised on the security of . Treasury bills, or may bo raised by the Minister of Financo by agreement with the Treasury of tho .Imperial Government without formal security or on such securitv as may bo agreed on. All moneyfj raised under this section arc to lis placed to the crodit of tho War Exnenses Account, established under the Public Revenues Amendment Act of 1914. The limit fixed by the Public Revenues' Act of 1910 as to the total amount that may be outstanding at any time in , respect. of Treasury bills shall not apply to Treasury bills issued for war purposes. Power is given for the renewal of Treasury bills from time to time by endorsement by the Minister of Finance or the High Commissioner. A clause is insorted to enable the Minister of Finance to raise money or renew loans at 1 rales of' interest in excess of tliosa stipulated in tho authorising Act. This is mado retrospective, the reason boing that, owing to the conversion proposals brought down from time to time by tho Imperial Government the Minister is never quite certain as to the rate of interest which New Zealand is actually paying for money which has been borrowed. The rates may at any time fluctuate and may exceed the limits provided in tho authorising Act. Purchase of Land by Debentures. It is also provided that whero powor is given under any Act to purchase land for the uso of t>.o Crown, the Minister of Finance, on agreement with tho vendor, may issue debentures for tho payment of same in liou of cash, and where undor any Act power is givon to acquire land compulsonty for the Crown's uso

the compensation payable or any portion of it may, at th« option of the Minister of Finance, bo pai<l in debentures and any person entitled to such compensation shall be obliged to acoept such debentures in lieu of cash. Debentures will bear interest at a rato not exceeding 5 per cent.

Banking Legislation. Part. 4 deals with hanking arid loans. It is provided that, notwithstanding anything in the Banking Act or in tho charter of any bank carrying on business in i\ew Zealand, t/in Governor-in-Couuci! maj from time to' time make certain regulations, including the suspension, alteration, or variation of the terms, conditions, or restrictions relating to theissue of notes by any bank, and the making of sncli notes legal tender in New Zealand. .Regulations may also bo made for altering the amount of the reserve of coin, bullion, .and public securities provided to be hold in New Zealand by any bank against the debtfi, engagements, and liabilities of such bank, and for providing t.ha.t bank notes of the denomination of 10s. may be lawfully issued in Now Zealand. In this part of the Bill the Governor-in-Council is given power to make regulations to define the rates of interest that may be paid on moneys inr vested in New Zealand by way of fixed deposits or by mortgage. A Million for Public Works. The Minister of Finance is empowered to raise bearing interest at a rate not. 4J per cent., such money to be paid into the Public Account to the credit of the Public, Works Fund, and. to be used for public -works. (This will provide for no "new money.") Soldiers' Estates. •It is provided that no stamp Tinty shall be payable on any power of attorney executed by any parson who is a member of the Expeditionary Force. Public Trust Office. A section of the Bill deals with the Public Trust Ojficß. It is provided that * ST 6 estate of a deceased member of the Expeditionary. Fotc© under admin-istration-by th© Public Trustee is of less value than £190, it may be distributed or conveyed and dealt with without the prescribed notices being given as laid' down in the Public Trait Act. Provision is also made that where the n-efc profits of the Public Trust Office in any year exceed the sum of .£20,000, the Governor-in-Council may direct that such profits or any part of thorn be orodited pro rata as a bonus to each estate or account in the office.

Deposits in P.O. Bank. Another part provides that when money is deposited in the I'ost Office Savings Bank for a fixed term the Postmaster-General may permit withdrawals before the expiration of the term. The rate of interest on money so withdrawn is not to exceed three per cent. This 01au66 is designed to allow of the temporary investment of patriotic funds. Social Insurance. The proposals under Part 9 of the Bill (epresent a very Important step concerning the relations between the Stfcte and the friendly societies, and avo designed to strengthen the efforts of both" the friendly societies and the National Provident Fund. The sohemo in the Bill Is drawn up to give effect to. the conclusions which were reached at the conference held in April last between representatives of the societies and the Government. « > The benefits will be administered by tho societies' through tho National Provident Fund Board, and are as follow:— (1) The payment of SA in respect of oil-members on the birth, of a child. (2) An annuity allowance of 103. at age CO for friendly societies' members at half the rates in the original Act. An increased pension of 205., 303., and 40s. may nlso be obtained nt reduced rates as set out in the schedulo to the Bill. These benefits apply to present as well n8 future members. The .maternity pavment will be unbjcct, generally speaking, to tho conditions that apply to contributors in the National Provident ' Fund. Members will require to be twelve months in their society beforn becoming entitled to the benefit, and their income must not exceed .£2OO per annum for tlie year preceding the birth. The nmternity payment is to be regarded as the 6'eneflt of the mother, and shall be payable only to her or to her husband if she\Tathnrises him to receive It.

Tho annuity benefit is optional on the part of members, and may "be taken up by all present or future 'members on payment of the contribution, which is set out in the schedule attached to the Bill. The contributions for this purpose cease at the ape.of 60, and at that age _ the society would transfer to tho Natioual Provident Fund from its sick fund i>n behalf of that member a sum that will be actuarially-fixed by relations under tho Act. From age n onwards ''d member will thuß receive a permanent allowance of 10s. per week, ".nrl the society will be released of future liability for sickness benefit on account Of that member. The 10s. benefit for life from nge GO Is a greater benefit than the present payment on sickness only,so that the members receive an advantage t.hrougli this 6cheme, and; the society is likewise released from one of the principal difficulties experienced in friendly societies-the payment of, old-age sickness

The provisions in the ease of the death nf a member are al c o of interest to friendly societies.' The refund of th° contributions bv the National Fund will mean an addition to the funeral benefit payable in resnect of the member to his familv. anil the refund of Hie amount <-ansferred bv the society at' age 00 is ntso n. valuable <"0 the f'H'prai insurti'ice of members in favour oT their families..

The svstem of accounts as between the National Provident Fund Board and th» societies will bfi set out by regulations, which also provide for the administrativs dotaiis in full. Tho schema will come into operation as from January 1, 1017.

Th» Til I wj'l c nnri e on for second reading probably 011 Wednesday.