COMPULSORY LOAN

Otago Daily Times, Issue 24420, 4 October 1940, Page 9

COMPULSORY LOAN

ALLOCATION OF LIABILITY MANY TAXPAYERS PUZZLED INTERPRETATION OF CONDITIONS NEEDED A good deal of uncertainty attaches to certain aspects of the proposed compulsory war loan, and many taxpayers have, since the issue early this week, of the loan prospectus, sought the assistance of the stock and share brokers of the city to arrive at an estimate of the amounts they will be called upon to take up. To a great extent, brokers have been able to provide the information sought, but one clause in the prospectus has. even now. defied all efforts to arrive at a conclusive interpretation and there are some taxpayers who remain in doubt on the question whethei their allocations will be the modest ones thev hope for or demands of considerable dimensions. The clause referred to states: —“ Foi the purposes of computing the minimum subscription, which must be calculated to the nearest multiple of £lO. any income that was free of tax (in the year ended March 31. 1939) in the hands of the recipient, shall be deemed to have been subject to such taxation The tax-free income which would be taken into account in this way. includes dividends other than those from comoanies incorporated in New Zealand, interest from tax-free Government Stock, tax-free company debentures, tax-free income derived from abroad, and farming income where the land used had an unimproved value of less than £3000.”

Alternative Interpretations The income tax for the year 1938-39 of a man whose total income was £ISOO, made up of £SOO salary. £SOO dividends from New Zealand companies. and £SOO dividends from overseas companies was based on his salary of £SOO. but was computed on the scale for £IOOO. This meant that the income from overseas investments was ignored that year in fixing his rate of income tax. The prospectus of the loan, however states that this overseas income, will be taken into account in fixing his proportion of war loan. What is not clear is whether the £SOO overseas dividends is to be taken merely to fix his taxation rate or whether it is to be regarded as the equivalent of taxable income. Two interpretations are possible. One is that the taxpayer’s liability to contribute to the war loan will be on the basis of the tax payable on £SOO at the income tax rate for incomes of £ISOO and the other is that the basis will be that of the tax payable on £ 1000 at the income tax rate for £ 1500 Another Problem Another aspect concerns the holder of tax-free Government stocks, much of which is held in large parcels. In this position, a man.may have been liable for no income tax in the year 1938-39, the whole of his income being derived from such a source. This income may have been very substantial, running into several thousands of pounds. It is generally agreed that it would be inequitable for cne in that position to be entirely exempt from taking up any of the compulsory loan, and in such cases the interpretation of the clause quoted is of vital importance.

The instances given are the more simple ones, and there are numerous cases where taxpayers derive income from any or all of the sources mentioned. In their cases, the allocation of liability is mere complicated still, and the announcement of an official interpretation of the situation is being awaited with keen interest.