BILL EXPLAINED

Evening Post, Volume CXXX, Issue 83, 4 October 1940, Page 9

BILL EXPLAINED

STANDARD INCOME

DEFINED

SCOPE OF LIABILITY

A SPECIAL TRIBUNAL

An unusually full explanation of the Bill is given in "the memorandum attached to it. The rate of the excess profits tax is 60 per cent, of the residue -of the excess profits left after there have been paid out (a) income tax payable on excess profits; and (b) the social security charge and national security tax payable on those excess profits. The income tax on the ex-cess-profits is taken as being the difference between the income tax payable oh the whole income and the amount of income tax that would have been payable if the standard income only had been received. The standard income of an individual taxpayer is whi' * ever of the following three sums he may select: (a) The sum of £500; or (b) a sum (called the normal income) equal to the greatest amount of assessable income derived by the taxpayer during any one of the three income years ended respectively on March 31, 1937, 1938, and 1939, or the average of the assessable income for these three years, plus 30 per cent., whichever is, the less; or (c) a sum equal to 6 per cent, of the value of the assets used in producing the income plus an allowance (not being less than £500 or more than £1000) for the personal exertion of the taxpayer. For a company taxpayer the standard income is whichever of the following two sums the company selects: (a) A sum (called the normal income) equal to the greatest amount of the assessable income derived by the company during any one of the three years already stated, or to the average of the assessable income for those three years, plus 30 per cent, whichever ir. the less; or (b) the sum which, after paying income tax computed at the basic rates (that is, the 1940 rate without the 15 per cent, war addition), represents 6 per cent, of the value of the assets used in the production of the assessable income. Both in the case of individuals and companies the taxpayer is regarded as having selected for his standard the normal income basis (increased where necessary to the £500 minimum in the case of individuals) unless he notifies the Commissioner of Taxes to the con- • trary when the return of income is ■ made. : Where the value of assets used in i producing income is material in order ■ to determine the standard income, the i net value is taken as being the differ- : cnce between the value at the end of i the income year of the taxpayer's :

assets and the amount at the end of the income year of his liabilities. The value of the assets and the amount of the liabilities are to be determined by the Commissioner of Taxes. POWERS OF COMMITTEE. Dealing with the powers of the Excess Profits Committee provided for in clause 7 of the Bill, the measure stipulates that the provisions relating to standard income and the valuation of assets govern only the making of tin Commissioner's original computation of the amount of the excess profits. The Committee is not bound b: r these provisions, and if an objection to the Commissioner's assessment is lodged, the Committee may fix the amount of the excess profits after taking into account all relevant circumstances. The Committee is given the powers of a Commission under the Commissions of Inquiry Act. Proceedings on appeal will be largely informal in character, as it is anticipated that the majority of objections will be determined after the making of representations by correspondence, leaving only a minority of objections to be determined after appearance and evidence before the Committee. Provision is made in the Bill enabling the reduction of excess profits for any income year by the amount by which the income for any of the three former years fell short of the standard income icy that former year. Losses incurred iin former years in respect to which the taxpayer would be entitled to an allowance in the computation of his taxable income for income tax purposes are to be deducted from the assessable income before the amount of the excess profits is computed. Where the Commissioner of Taxes makes an assessment of excess profits tax, the assessments of income tax and of social security charge and national security tax are made in the usual way. These assessments are not varied by any later alteration in the amount of the excess profits by the Committee. The only amendment subsequent to the original assessment (save where the total income is found to have been incorrectly stated) will be any necessary amendment to the assessment of excess profits tax. Excess profits tax is payable at the same time as income tax. EXEMPTIONS. The following incomes are exempted from excess profits tax:—(a) Income from royalties received from timber, gravel, or mineral rights; (b) proprietary income derived by shareholders from proprietary companies—the excess profit derived by the proprietary company itself is liable for excess profits tax in the hands of the company; (c) salaries and wages, except in cases where excessive salaries are paid by proprietary companies to the directors or shareholders or to their relatives; (d) the income of gold mining and petroleum mining companies. . The tax operates on income derived during the current year, and for every year during the period of the war.