TAXATION OF FARMERS

Sun (Auckland), Volume IV, Issue 1033, 25 July 1930, Page 8

TAXATION OF FARMERS

INCOME-TAX TO BE LEVIED ANOMALIES REMOVED TIIE SUN’S Parliamentary Reporter WELLINGTON, Today. “It is proposed to obtain part of the additional revenue required from land and income tax,” said the Hon. G. W Forbes in the course of his Budget speech last evening. "Opportunity is being taken to remove certain anomalies and place the taxes on a more equitable basis. "The information obtained from last year's returns of farming incomes showed clearly that previously manylarge incomes had been escaping then’ fair share of taxation and that the amendments made last session were in the right direction. Experience has shown, however, that the special land tax was too rigid in its incidence and was inequitable in some instances At the same time, information received l»y the Tax Department shows that the incomes derived from many farms of an unimproved value of consider ably less than £14,000 (and thus not at present assessable for income tax) are not contributing a fair share toward the expenses of the State.

“Accordingly, to overcome all these difficulties and inequities it is proposed to abandon the special land tax and make all farmers owning or occupying land of an unimproved value of £7,500 or over liable to assessment as well as other income. “The provision in last year’s legislation whereby the land tax payable was deductible from the income tax on farming incomes will also be repealed and farmers will henceforth be assessed for' income tax on the same basis as other classes of the community. SERIOUS INEQUITIES "Further, it is found that the present general provision allowing a dedue tlon for income tax purposes of 5 per cent, on the capital value of propertyused in production of the income has given rise to serious anomalies and inequities. This allowance is intended ivs a set-off for land tax paid, and also to provide for depreciation of buildings, but the method is too rough and ready to be equitable. For instance, a taxpayer deriving income from rents is at present allowed as a deduction the interest on his mortgage and also 5 per cent, on (he fu’l capital value, in which his equity inav be relatively small. In many such cases the taxpayers practically escape income tax, and by reason of the mortgage exemption may ulbo escape land tax. "Again, in the cities, owing to the erection in recent years of large and valuable buildings, the 5 per cent., allowance has in some cases relieved the business man not only of the amount of his land-tax, but, in addition, of a considerable part o£ his income-tax. Further, the taxpayer carrying on his business in a steelframe structure with a life possibly exceeding one hundred years is allowed the same rate of 5 per cent, as the taxpayer using a wooden building with a possible life, of, say, 40 years. Even in the latter case 5 per cent, on the capital value is an excessive allowance. Further depreciation is an actual expense and should be allowed as a deduction before arriving at the assessable income. At present it is a special exemption. PROPOSED ALLOWANCES "Accordingly, it is proposed to revert practically to the position obtaining prior to 1923, and reduce the allowance to 5 per cent, on the unimproved value or the taxable balance in cases where a mortgage exemption has been allowed in the land-tax assessment, together with an appropriate allowance for depreciation of buildings, varying with the different classes of building, at the discretion of the Commissioner of Taxes. "The proposal really amounts to dividing the present allowance into Its two parts—an allowance of 5 per cent, on the unimproved value as a set-off against land-tax paid, and depreciation on buildings at appropriate rates as a deduction from profits. The change will apply to all assessable income derived from the use of land, whether in the course of fanning or trading. "It Is estimated that the yield from land and income-tax after those adjustments have been made would be practically the same as under the existing legislation, the only difference b'eing that the burden would be more equitably distributed. “In order to obtain part of the additional revenue required to balance the Budget, it Is proposed to withdraw the land-tax concessions granted in 1924, whereby a deduction of 5 per cent, has been allowed on the amount of land-tax otherwise payable.”