Tree of Income Tax.

Hokitika Guardian, 1 September 1922, Page 4

Tree of Income Tax.

WAR DEBENTURE CONCESSION.; FIFTY MILLIONS FREE. (Lyttelton Times Correspondent.) WELLINGTON, August 29. “What is the interpretation of ‘free of income tax’?” aske'd the Hon. J. A. Hnnnn of the Prime 'Minister in the House to-day. The member for Invercargill remarked that 'during the war Australian States, as well as New Zealand, issued debentures free of income tax, hut there was nn important point involved in the interpretation of this term. He noticed tKnt when the question was raised in Victoria tho Commissioner had ruled that where investors held loans free of either Federal or State taxation their interest on bank overdraft would be disallowed up to the amount of interest received from debentures.

Mr Massey replied that he had hoped to hear a full discussion of this class of security on the financial debate, but very little had been said. “I am not looking for a loophole,” he continued.

“I am not seekina: a -way out. At the time these debentures were issued, most of them compulsorily, it was understood clearly and distinctly that they were free of income tax. There must bo no attempt to evade that condition. I have a scheme in hand. I can’t discuss details just yet, but what I have in view will not do injustice to the people who hold these bonds. It is serious enough, because fifty millions of the very host securities arc free of income tax.” ,

Mr Hnnnn asked if the Prime Minister could make some alteration so that people could not utilise these bonds to avoid their income tax obligations. , Mr Massey replied that he recognised this point, and would eventually discuss it in the financial debate. Mr Sidey who referred to the matter in later discussion, said the Government might take into account income received from free of income tax debentures when assessing the taxable amount of a person’s income, though it would be a breach of faith to tax nn investor on liis bonds.

Mr Hanan : No breach of faith if income tax is being dodged through this system. Mr Sidcv added that during the war he supported this bond issue, but lie did not advocate continuance niter the war ended. HOW IT JS DONE.

The member for Invercargill was subsequently asked if he would explain what is going on in the way of avoiding large payments of income tax by means of free income tax debentures.

The Hon. J. A. Hanan replied that there were serious losses through these debentures. It paid large insurance companies to buy ttiese stocks as they secured income which did not go to swell their gross income for taxation purposes. In tho case of private individuals enjoying a large income they diverted large amounts of capital from ordinary investment sources into free of income tax bonds, with the result that their remaining income tax was assessed on a lower scale than if tlie whole of their capital had been invested in ordinary commercial concerns. Thijj practice bad been so widely followed that be knew it had had a serious result in diminishing the income tax receipts. There were, cases in which the transference of capital into these bonds paying 4> per cent, interest meant a clear gain of G per cent, to the investor.