THE TAXATION OF THE LEASEHOLDER

Dominion, Volume 9, Issue 2830, 22 July 1916, Page 10

THE TAXATION OF THE LEASEHOLDER

AX INJUSTICE CALLING TTOK UEJIEDY. (To the Editor.) Sir,—l write this to draw attention to the position of the unfortunate leasehold bush farmers as compared with the freeholders under both Ihe Income Tax Act and the Excess Profits Act. Personally, I have got to return to my farm-and work, and inasmuch as I {jet the mail only once a week, 1 cannot reply to any correspondence .on this matter; luit surely there is some member who will go into the matter, and take up the cudgels on behalf of this—in many cases the poorest—section of the. farming community, and try to get the gross ■Injustice of "it remedied. Take as an example an education reserve; where the lessee is entitled to full compensation for nil improvements at the end of the term, or a right of renewal at 5 per cent, of the unimproved value. It sounds a good tenure, but everyone knows that farmers fight rather shy of them, though they don't' know why. This is why. For the first few years that a farmer lakes up a bush section lie gets no profile as a rule. The cost of working has fo be met somehow, and' lie has Fo' pny it out of capital practically entirely. Again, tracks have to be cut through the new burns, and grass to be end this also has to come out of capital." At the end of the term the valuer cnnie.s round, and values what improvements, lie sees fairly enough—perhaps—but a second fire has been over the property, burnt up most of the logs and stnraps, thus rendering the tracking unnecessary, and necessitated a second sowing of ei-ass by destroying the first sowing. Prom what T have said it must be very obvious to any thinking man that tho Government valuation Of tho improvements would always be n very long way below the actual cost of bringing the land to its present state of mitigation. Tf the farmer is to keep his capital intact, and reimburse himself for what he has aetuallv spent, he ab=olutelv must, as soon as he can do so, set aside annually enough out of what would otherwise lie profits to make good the difference between the actual cost of bringing his land into cultivation, and the Government valuation of the improvements. Tt is also obvious that any monev so set "side is rapital really, and that-his profit is only the surplus after allowing for this denrecinfion.

Without going into detail? a little studv wHl.nlso show anvone Mint so fnr, us pound finanon joes iliis denreciation is not affectedr.by the right, of renewal because. for purposes of-rcadinstroent ff in»t at the end of the term it is invariilb'y treated as part of tile unimproved value, _ Now Tin deceht farmer objects to paying a full income tax and snrplus profits tax when ho lias made a profit, but when ho finds himself taxed on an imaginary profit — a profit which is 'only made to exist by making no proper allowance for depreciation, he won't like it, and some of the members of the House, with various kinds of leasehold constituents to face, will possibly have some pointed questions asked as to why their interests were not better watched. As far as leasehold farmers are concerned neither tho Income Tax Act nor the Surplus Profits Tax Act allow provision to be made for depreciation under any circumstances whatever, i.e., the farmer has to pay these taxes not only, oil his income and profits, but also on a part of his capital as well. Of course 011 freehold land and very long leases there is very rarely any depreciation at : all—if ever—because in practise the selling value nearly always exceeds the book value or actual cost, but as regards catioii reserves, large numbers of fairly short-term Native leases and various other leases, tho selling value rarely is much higher than the Government valuation of the improvements, and is a great deal below the actual cost. Morcover, advances are always based on the Government valuation. The following is a hypothetical examplo .comparing the position of the freeholder and the leaseholder/ under the surplus profits tax. Tho figures though and ready and in the lump are fairly near the mark or ordinary cost and Government valuations, and are based on actual figures as shown in carefully-kvpt farm accounts:— A. v B. Leasehold (Educa- , tioii Reserve, 8 Freehold.. years to run, Acreage, 2000 acres, acres). £ ' X E. d. Cost of improving 12,000 12,000 0 0 Govt, valuation improvements — 5',800 0 0 Selling value 14,000 0,000 0 ,0 Depreciation nil ■ 6,000 0 0 Value of stock .... .5,000 ;"i,OOO 0 0 Value of land (Gov.) 12,000 12,UCU tl 0 Rental — ■ s *100 0 0 Standard value ... 17,00(1 17,100 . 0 0 Standard income . 1,<!75 1,282 10 0 Actual income 2,000 - 2.0C0 <] 0 Surplus profits . 723 , '717 10 0 (A) Tax—4s per cent, of ,£326. (B) Tax—4s per cent, of .£717 10s. (about), £328. •. ■ ' B, however, must write off fordepreciaf ion one-eighth'of'.£6ooo shown above) total deduction, .£750—,£1073. A has left for himself after deducting income tax, ,£2OOO, less'.£326 as'.,- net income .£1673 15s. / . ' B has left for himself after deducting income tax <432000, less <£1070, net income .£927. From both income tax must be deducted.' but B's is assessed'on his depreciation as well as his income. The difference between the actual cost of making improvements. .612,001), and the Government valuation or 'selling value of the improvements should constitute. the depreciation. The Fitiance Bill does not allow any depreciation 011 improvements, which are the leaseholders' only as>et, and which are depreciating all the time, while on the other hand (lie freeholder has all the benefits of ownership of the unimproved value, which is all the time an appreciating asset.—l am, etc.. BACK-BLOCKER. Mairoa, Te Kuiti.