QUESTION OF LAND TAX.

Taranaki Daily News, 27 May 1921, Page 6

QUESTION OF LAND TAX.

BETWEEN BUYER AND SELLER, SUPREME COURT DECISION. Following is a resume of the judgment ot His Honor Mr. Justice Reed in the rase ot E. W. M. Lysons and others v. Henry Alexis Charles, which was heard m the Supreme Court during last week. The action was one for the recovery of a sum of £lO6 «s lod, being due to the plaintiff from defendant under clause 4 of an agreement for sale in writing made between the parties on April 14 1020. The agreement provided, inter alia, that the purchaser should, on the signing of the agreement, pay certain moneys and the balance was to remain on mortgage. Clause 4 provided: Possession of the land shall be completed on July 1, 1920, . . . at which date all rates, taxes and other outgoings shall be apportioned between the parties. The deposit money was paid, and defendant took possession on the date agreed, and the plaintiff claimed as due to him the sum of £lO6 6s lOd on the apportionment of “rates, taxes and other outgoings,” as the apportioned amount of land tax for the current year, on the assumption that the rate under the Land and Income Tax (Annual) Act, 1920 (which had not then been passed), would be the same as under the Land and Income Tax (Annual) Act. 1919. The assumption proved to be correct, the rate being the same. On September 23, 1920, the plaintiff received notice from the Commissioner of Taxes that he had been, assessed for “land tax in respect of land owned as at March 31, 1920, as shown below.” The land “shown below” included. among other lands owned by the plaintiffs, the property sold to defendant. The total assessment was £18,740, of which £15,715 represented the property in question, and the total tax was £lB2 Is Id. The plaintiff paid the full amount of the tax on November 24, 1920. The facts were admitted.

Proceeding to a review of the arguments the Judge said it was contended for defendant that section 162 of the Land and Income Tax Act, 1916, rendered clause 4 of the agreement inoperative as regards land tax. It was further contended that land tax was payable in respect of the preceding year to which it is collected, that the tax was assessed as at noon on March 31. and was therefore not payable by a person who enters into possession after March 31. Section 162 of the Land and Income Tax Act, 1916, provides: Every contract, agreement or arrangement made or entered into, either before or after the coming into operation of this Act, shall be absolutely void in so far as, directly or indirectly, it has or purports to have, the purpose or effect of in any way altering the incidence of land tax or income tax. or relieving any person from his liability to pay such tax. His Honor said he did not think the section had any application to the contract. “Under certain circumstances,” continued the judgment, “the effect' of these two last mentioned sections would be to make both buyer and seller liable for land tax.” .Provision, however, is made to rectify that by sub-section 3 of section 16, which enacts:’ “When by virtue of this and the last preceding section the buyer and seller of land are both liable for land tax in respect thereof, there shall be deducted from the tax so payable by the seller in respect of the land the amount of the tax payable in respect thereof by the .buyer.” These sections make it abundantly clear that the whole scheme of the Act is that the taxation shall fall upon the beneficial owner. That being so, how could it be said that a contract such as that contained in clause 4 (of the agreement) could alter “the incidence of taxation.” The contract for apportionment is simply an adjustment between the vendor and the purchaser of a tax for which they are concurrently liable, and does not affect the incidence of the tax.

“The question then arose: Is land tax payable in respect of the year preceding the year in which it is levied? It was argued that land tax was analogous to income tax, and that as the “year of assessment” of income tax is in respect of moneys earned during “the income year,” which is the year ending March 31 preceding the “year of assessment,” so as regards land tax the year of levy is in respect of the preceding year. The fallacy of this argument is apparent. Land tax is not levied on the returns from the land, and the amount of the tax does not vary whether the landowner has on March 31 owned the land one day or twelve months. The end of the financial year—March 3'1 —is simply fixed by the Legislature as a convenient date upon which each area of land in the Dominion is attributed to the ownership of some person. Such person becomes primarily liable for such tax as may afterwards be levied. Such levy has nothing to do with the actual ownership of the land during any portion of the preceding year, except one day— March 31. The land may have changed hands half a dozen times, as it does sometimes in boom yearfe, but this does not affect the quantum of, or liability for, payment of the tax. A contract, such as the one in question, enables such tax to be both rightfully, and, in my opinion, lawfully adjusted as between an owner on March 31 and a subsequent purchaser during the ensuing financial year. I am therefore of opinion that the defendant fails in both contentions.” Judgment was therefore entered for plaintiffs for the amount claimed, with costs on the lowest scale. Mr. D. Hutcben appeared fo’* plaintiffs and Mr. Patterson (Hawera) for defendant.