OFFICIAL EXPLANATION

Evening Post, Volume CXVIII, Issue 90, 13 October 1934, Page 10

OFFICIAL EXPLANATION

The following explanation in regard to assessing dividends from British companies was made to a "Post" representative) today by Mr. C. E. Dowland, Commissioner of Taxes: —

"Dividends received in New Zealand from a British company trading in New Zealand are 'net' after the deduction of British income tax by the company. Now Zealand taxpayers who expect to be assessed on the 'net' figure are somewhat surprised to find that income tax has been added to the dividend received. The explanation of this will bt found in section 80 (1) g of the Land and Income Tax Act, 1923, which is as follows: 'In calculating this assessable income uerived by any person from any source no deduction shall be made in resepct of any of the following. . (g) Land tax or income tax.' "As the dividends are declared free of tax to the shareholder by these companies and the income tax is paid on behalf of the shareholder, it is therefore necessary to add the British income tax to the amount of the net dividend received. (Note that in many cases the British taxation authorities refund to the shareholders the amount of tax charged or portion thereof). WHAT THE ACT PROVIDES. "The authority for using these dividends to determine the exemption and rate applicable to the assessable income will be found in section 6 of the Land and Income Tax Amendment Act, 1931, quoted as follows: —'Non-assess-able income to be taken into account in certain cases. (1)" Where in any income year any taxpayer has derived assessable income and has also derived any non-assessable income from a source referred to in the next succeeding subsection, then, notwithstanding anything to the contrary in the principal Act or in the annual taxing Act, the amount of the special exemption (if any) to which he may be entitled under section 74 of the principal Act and the rate of income tax payable in his taxable income shall bo computed as if the non-assessable income derived by him as aforesaid were assessable income. (2) The non-assess-able income referred to in the last preceding subsection includes the following:—(a) Income derived from securities issued by the Government of New Zealand subject to the condition that the income derived therefrom shall be exempt from income tax. (b) Income derived from debentures issued by companies' on terms providing for the payment of income tax by such companies, as provided by section 171 of the principal Act. (c) Dividends or other profits derived from shares or other rights of membership in companies."