TAXATION LAW

Wairarapa Times-Age, 30 September 1939, Page 7

TAXATION LAW

NUMEROUS CHARGES.

To relieve hardship on certain perSons absent from the Dominion for health reasons, they are granted an exemption of £2OO. whether or not their incomes exceed that sum. A pro rata exemption up to £2OO based on the period in New Zealand is granted to persons such as shearers, slaughtermen, or non-resident traders who come from abroad. Previously there was ho such exemption. A special exemption of £5O is also granted to absentees. The exemption of £5O which has been granted in the past to a childless widower in respect of a housekeeper is removed, but the Bill confers the right to an exemption on a divorced person with dependent children. Where death removes a dependant, a taxpayer is granted full exeption for that year instead of a portion only. The granting of a special exemption in respect of any dependent relative is to be permitted, except in cases where the relative is a beneficiary under the Social Security Act.

The sum which may be claimed as special exemption on account of life insurance premiums, superannuation and National Provident Fund contributions, etc., is limited to £l5O a year, or 15 per cent of the assessable income, whichever is the less.

Authority is given for the aggregation of the incomes of husband and wife for taxation purposes. A long clause provides for the assessment of the incomes of a husband and wife living together at the rate of tax prescribed for the combined figure, except Where the income of one is less than £5O. Where separate assessments are made the personal exemption of £250 allowable to them both is divided between them in accordance With the respective amounts of their assessable income. Other personal exemptions Such as those for dependent children will be apportioned as the Commissioner of Taxes thinks fit. OCCUPATION OF LAND. Income tax is to be levied on all income derived from the use or occupation of land, whether the unimproved value is less than £3OOO or not. A taxpayer who incurs legal expenses in acquiring a lease or in, raising money on mortgage will be able to claim a deduction for those expenses if the property or money is used in the production of his assessable income.

Any increase or decrease in the value of trading stock is to be taken into account when determining the taxpayer’s assessable income. When a business is realised the Whole of the purchase money received is to be taken into account in computing assesable income. Farmers, are to be empowered to fix a standard value for their live stock. This means that their assessable in* come will be determined by reference to sales of stock and purchases of stock during the year, and not to any rise or fall in the value of stock held during that period. Income received from a source elsewhere within the Empire and on which tax has been paid in that country is to be used to affect the rate in the same way as are dividends from New Zealand companies. At present, income received by a taxpayer in New Zealand from another Empire country is not taxable in the Dominion if it has borne tax in the country of origin, nor is this income used to affect the rate of tax payable. This means that exempt income derived from New Zealand such as dividends is used to increase the rate of tax, but ah advantage is conferred upon persons who have invested their money out Of NOW Zealand. The clause corrects this position. COMPANIES AND SHARES.

Another clause amends the provisions enabling losses to be carried forward by providing that a change in share holdings consequent on the death of a principal shareholder is not to be taken into account. Under the present law a company which suffers a loss in one income year is precluded from carrying that loss forward and setting it off against profits in a subsequent year if the share holdings in the company have meanwhile changed by more that 25 per cent. Cases have arisen where this has happened because of the death of one of the principal shareholders. The section in the principal Act by which two co-related companies can be assessed as one company is amended to meet the position of chain companies. and there is a new clause defining the circumstances in which shareholders are deemed to be in control of a company. The definition of dividends is extended to bring it into line with that contained in the Social Security Act, There is a clause designed to assess principal shareholders in private companies as though they were trading in partnership. At present it is possible for persons who are in effect partners to form private companies and thereby divide the income derived by them into two portions and so secure a lower rate of tax. The Commissioner of Taxes is empowered to disallow such portion of the payments by proprietary companies to the shareholders or relatives as he considers in excess of the value of the services rendered. Cases are stated to have occurred of private com-

panies paying to directors and to relatives of directors or {shareholders sums ih excess of the value of services •given by these persons to the company. The effect of this is to reduce the total income of the company and so reduce the rate of tax payable by it. I ARBITRARY ASSESSMENT.

In cases where it appears to the commissioner that a business controlled by non-residents is not returning the true amount of profit he may make an arbitrary assessment of the tax to be payable by such companies. The Bill provides for the appointment of a special committee to make recommendations to the Minister of Finance in respect of objections to arbritrary assessments ledges by taxpayers. The committee is to consist of the Commissioner of Taxes, the Solicitor-Gen-eral, and the Secretary to the Treasury. Several clauses amend the law relating to the assessment of income derived by trustees. Traders in the Cook Islands, who have previously paid no income tax whatever, are brought within the scope of the income tax laws. Land tax levied on land used in the production of assessable income may be claimed as a deduction for taxation purposes. The present law prevents a taxpayer from deducting from his assessable income any income tax, land tax, or employment charge paid by him. The deduction of income tax or social security charge is still precluded. The Bill was read a first time.

AN IMPORTANT AMENDING BILL LAND TAX DEDUCTION PERMITTED. REMOVAL OF ANOMALIES (By Telegraph—Press Association.) WELLINGTON, This Day. Important alterations to the taxation law are embodied in the Land and Income Tax Amendment Bill, which was introduced by Governor-Gen-eral’s message in the .House of Representatives yesterday. The Bill, which is also designed to correct a number of anomalies in the incidence of taxation, will apply to income derived during the current income year. Two of the main provisions are those limiting the deduction from taxable income for insurance and superannuation purposes to £l5O, and allowing land tax levied on land used in the production of assessable 'income to be claimed as a deduction for income tax purposes. Exemption from the payment of income tax on service pay is given to members of the New Zealand Forces serving outside New Zealand during the war, and the soldier’s pay does not operate to increase the rate of tax on the balance of his income. An employer who pays salary to an employee who is serving with the forces is entitled to claim a reduction from his assessable income in respect of the amount paid to the employee, with a limitation of £4 a week. The Bill removes from unincorporated bodies the special personal exemption of £2OO allowed to individuals which they are at present granted.