THE LAND AND INCOME TAX.

Matamata Record, Volume II, Issue 67, 31 January 1918, Page 1

THE LAND AND INCOME TAX.

How it Affects Farmers. On Saturday night Mr EMcGregor, solicitor of Morrinsville, who is also an associate registered accountant, gave an address to the Morrinsville branch of the Farmers' union on the Land and Income Tax. In his opening remarks MiMcGregor touched on the history of taxation. There were two distinct methods of levying taxation —the tax on capital and the tax on income earned. It had always been adopted in New Zealand that the Income Tax was for general purposes, the tax on capital for the holders of real estate. The Income Tax touched the class who were earning large salaries with comparatively little capital. The position of the farming community was the opposite. The farmer unfortunately rarely, if ever, keeps proper books of account. It is practically impossible tor him to tell at the end of the year what the true nett profit on the working of his farm is. Even if he kept books it would be doubtful if any inspector from the Income Tax office could understand them. The farmer on the land almost invariably had the bulk of his capital invested in the land which he owned. Consequently, it was easier to tax him on his capital than on his income. That was the position up to 1916. Income derived from business was subject to income tax, but income derived from land, speaking generally, was exempt, and in lieu of this the capital invested in the land was subject to taxation. The method of procedure was on the whole equitable. It yielded the maximum amount of revenue with the minimum amount of trouble both for the taxpayers and the tax-collecting department. In 1916 an alteration took place. An income tax was demanded on income derived -from land in addition to a capital tax"3)fr-fea. uolmproved value of the land. They hatTto-remember there was a war and revenue was required. Consequently no exception could have been taken to the increased taxation if a capital tax had been demanded on those forms of capital in addition to the Income Tax previously payable. The revenue was secured for 1916, but still more revenue was necessary. Sir Joseph Ward had not been called the Wizard of Finance for nothing. In 1915 a tax on capital, in 1916 a tax on income and capital, and the farmers had , thought he had reached his limit, but in 1917 " you had a tax on the capital you own, plus a tax on the income you" earn, with an addition of a tax on the money you owe." The speaker then proceeded to explain the provisions of the Land tax. The outstanding feature of the act was that except in certain cases no deduction was made for mortgages on the land. The case of a person having an unencumbered property or property subject to a mortgage of less than £SOO was the first instance taken. The act provided that if the unimproved value of the property did not exceed £1,500 a deduction of £SOO may be made in ascertaining the taxable value. If the land was worth over £1,500 the £SOO allowance was reduced by £1 for every £2 of the excess so as to leave no deduction when the value amounts to or exceeds £2,500. On a property valued at £I6OO the deduction would be £450, and on a property valued at £2OOO the deduction would be £250. When land is subject to a mortgage and the value of the land does not exceed £3OOO a deduction may be made of the amount of the mortgage up to £ISOO. When the value exceeds £3OOO the deductabje amount diminishes by £1 for every £2 of the excess, so that no deduction can be made when the value of the property is £6OOO . or over. His objection to the act was that a man was no longer taxed on the wealth or capital which he possessed. He mentioned a case where three brothers with commendable spirit and energy, but with very limited capital, took up land as tenants in common. The unimproved valuation was £6650. The mortgages on the land

totalled over £9OOO, yet no deduction was allowed for taxing purposes, and the Land Tax amounting to £4B 18s had to be paid. The speaker pointed out that the word mortgage in the Act referred to registered mortgages only, consequently no deduction could be made for monies owing on unregistered mortgages. Unpaid purchase money, however, was treated as a mortgage. The Act provided for special exemption where the taxpayer was a widow with dependent children, and the commissioner was also given power to allow alternative exemption where the taxpayer's income from all sources did not exceed £2OO, and where the provisions of the Act would otherwise cause undue hardship. The Act provided that where persons hold land as joint tenants or as tenants in common they shall, for the purposes of the Act, be deemed to be a single owner. One section of the Act which was adversely commented on by the , speaker was that which provides \ that the commissioner may! decide that the vendor may still be declared the owner of property where less than 15 per cent, ofj the purchase consideration has; been paid. He pointed out that when 15 per cent, of the purchase money has been paid the purchaser is treated as absolute owner and compelled to pay land tax on the full unimproved value. The other clauses in the Act were briefly touched on. ' The Income Tax was then dealt with. He pointed out that since farmers had to pay income tax they must keep proper books. The responsibility was placed on the taxpayer. If proper books were not kept the commissioner has power to arbitrarily assess th 9 income tax payable, and he will see that the amount is on his side of the fence. Mr Slack : Where does he get his figures ? Mr McGregor: He guesses them. Continuing, the speaker urged the branch to secure a special farming book-keeping class at the Agricultural Science room. Dealing with the amendments in the new Act he said the principal alteration affecting farmers was that the capital basis of the exemption in respect of land had been 'changed from capital to unimproved value. Last year a 5 per cent, deduction of the capital value was allowed ; this year it was 5 per cent, on the unimproved value. Last year the exemption was £300; this year it is the same amount but it diminishes by £ for £ over £6OO, ceasing altogether when the income is £9OO or over. The new Act favored the man with the large family. There was no limitation to the number of children and the taxpayer could claim exemption of £25 for every child under the age of 16. D-epreci-; ation at 5 per cent was allowed on all buildings. A member; Does that cover fences. < Mr McGregor; No, you are, allowed to charge maintenance as an expense. A number of questions were asked the speaker. Mr Orr asked if a farmer sold his farm and his stock realised £SOO more than standard valuation would he have to pay income tax. Mr McGregor gave it as his opinion he would. In making up his income tax form stock was included. Mr McLachlan asked if the abolition of the mortgage tax would cheapen money for the farmers. ' Mr McGregor said the rate of interest on money was governed by the law of supply and demand. Mr McLachlan contended the farmer had to pay the mortgage tax one way or the other. If the Act was for the duration of the war it was no good growling. • A hearty vote of thanks was accorded Mr McGregor by acclamation.