I am not quite clear how far we had got last night. I think the Minister had begun to make observations.
Finance Bill, 1965: Committee Stage (Resumed).
Debate resumed on the following amendment:
Before subsection (3) to insert a new subsection as follows:—
"() Notwithstanding the provisions of subsection (2) a business of dealing in or developing land shall not be deemed to be carried on where the person so disposing of the same had been in occupation thereof for the whole of the three years prior to such disposal as his only or main residence."
—(Deputy T.F. O'Higgins.)
I am not quite sure if amendment No. 53 had been withdrawn or whether I had moved amendment No. 54.
We were discussing amendments Nos. 53 to 57 inclusive.
Amendment, by leave, withdrawn.
I move amendment No. 54:
In subsection (3), page 32, lines 54 and 55, to delete ", bona fide, intended" and substitute "constructed or reconstructed".
The purpose of the amendment is to take out the doubtful quality of the expression "intention" and insert the words "constructed or reconstructed". The same point is dealt with in the subsequent amendment in the name of Deputy Sweetman.
Last night there was some discussion on the question of exclusive occupation.
The point Deputy Sweetman made was whether the person went into occupation of a house without his wife and family. He asked whether exclusive occupation meant the man occupied the house by himself to the exclusion of his wife and family. Exclusive occupation would embrace persons who would normally be living with the occupier.
Does it include a man who sets aside one part of the house for a flat for a married child?
No, it would not include that. The problem would arise where a person could go into occupation of a block of flats and occupy just one flat and it would be difficult to catch that type of case if there were an inclusion of the type of case referred to by the Deputy. I said last night that I proposed bringing in an amendment on Report Stage which would exclude a case of that nature in which there was a reasonable profit of say, £1,000 made on the resale.
Nowadays, a seaside bungalow would not have to be anything great to go to £2,000.
Within what period would the £1,000 increase have to arise in order to provide liability?
The Deputy will appreciate there are certain exclusions in the Bill, but, as far as value is concerned, the property would be valued in relation to the value of the house five years before. There is an exclusion in respect of six years of occupation.
The £1,000 must arise within five years. The price of property in the ordinary way, without reconstruction, has skyrocketed in the past five years.
It is £1,000 profit I am referring to, not £1,000 value.
I appreciate that it was profit but perhaps, on that aspect of it, we had better wait until we see the amendment. It might be easier to discuss it.
Do I take it that where a person does not live on property that may be a business or small shop, if he were to sell the property outside the six years, there would be a capital gains tax put on it if he sold at a profit? It may be a lock-up shop.
Only if he had built the shop, occupied it for a short time and then sold it. It is not regarded as a capital gains tax but a tax payable on the profits earned in the course of business. In other words, if his business was erecting shops, occupying them for a short time and selling them again, that would be caught.
Suppose a case arises where a person builds premises and occupies it, sells it in 20 years time and the capital profit is very large due to the depreciation in money value, is he still taxed on that?
No, he is not.
I take it that once it is over the six years, it is all right, in business or otherwise. Another case: suppose there are premises such as a grocery shop and the health authority insist on the owner renovating it, which the owner could do without but for the fact that the health authority insist. In this case he could prove that he was forced to do it. The renovation enhanced the value to a certain extent and, if he sells, he makes some profit. Is he taxed on that?
That could be construed as repairs and not development for the purpose of sale.
Take licensed premises where a person is forced by the health authority to put in toilets and so on. This will enhance the value of the property but he is forced to do it and did not want to do it if he could have got away with it. The owner sells the premises and, perhaps, on the extension, makes a small profit. Is he taxed?
The fact that he was obliged to do it by the health authority would establish his bona fides; in other words, that he was not doing this merely for the purpose, as part of his own business of selling and making a profit.
I take it that in the case of a business, provided it is held for six years, there is no gains tax at all?
No. It is not a gains tax; it is income tax.
It is a capital gains tax. There is no other phrase for it.
Could the Minister help us in any way as regards how the increase in value will be calculated?
Surely that arises on the section, not on the amendment.
It has been discussed here. If you prefer, I will raise it on the section.
We will dispose of the amendments and then go on to the section.
Would the Minister, in relation to amendment No. 54, consider amending it so as to bring within the net of "exclusive occupation" relatives, on the same lines as relatives are included elsewhere in the Bill; in other words, have it, "in the exclusive occupation of the person concerned or of his issue," within a limit? I am thinking, looking at it again now, that if a person buys a house for his son and the son lives in it exclusively, it will not be exclusive occupation by the purchaser and if that house were sold at a profit afterwards, there would be a tax on it. That is not the type of case the Minister is trying to catch. I think it could be covered well enough by something on the lines of "person or relative" and defining "relative" as being father or mother or issue. At least, you will get somewhere there. As it is at present, it seems to me that the amendment is not sufficient to cover the genuine case of a person who buys a house for another. Fathers have been known to have to do that for their sons.
I will consider what can be done about that.
There is a further case, where a person is working in the Civil Service, say, as a postmaster, and he is moved to various parts of the country. He can buy a house and he can be moved inside three months and it could happen that he would be moved twice in six years. How would he be fixed?
He would be all right as long as he lived in the house.
If he lived in the house only for a year and was moved then, what would be the position?
If he were moved, say, to Galway and had to buy a house in Galway and was moved from there to Cork, he would not be caught at all, even if he stayed only for a short time.
If he built a house in three different places in six years, he still will not be caught?
No.
And he would still qualify for three housing grants from the Department?
I would not think so. That is a different field.
Would the Minister tell me why he would not be liable— under which paragraph?
Subsection (3) (b) (ii).
Amendment agreed to.
Amendment No. 55 not moved.
I move amendment No. 56:—
In subsection (3), page 32, to add the following word and subparagraph at the end of paragraph (b): "or
(iii) the Revenue Commissioners, or on appeal the Special Commissioners, are satisfied that the building was constructed or reconstructed for exclusive occupation by the person as a farmhouse or farm building for the purpose of farming the land and was in fact so occupied for substantially the whole of the period from the time when the construction or reconstruction was completed to the time when the interest was disposed of,".
I move this amendment because there was some question raised on the Second Stage as to a farmer who occupied lands for ordinary farming purposes, carried out certain development work in the course of his business and then sold. This is to ensure that such a man will not be caught for tax.
Am I right in believing in relation to these several amendments and the section itself that the section fundamentally is designed to apply to persons who are in the business of developing land and building houses for sale? Is that not the primary purpose of this section?
That is the main purpose but there are isolated cases that could be construed as being in business.
And the Minister's amendment and the wording of the section are designed to exclude such persons?
That is right.
And to confine the operation of the section to persons who are genuinely in this business?
That is right.
And who may seek to dissemble that they were not in the business for the purpose of making a profitable transaction. The test will be: "Are you, in fact, in the business?"
No.
No.
If that were the test, I would not mind.
There will be isolated cases where a person who, having been in occupation of a house, develops it in a way as will enhance its value for the purpose of reselling. He will be regarded as being in a business even in that isolated instance.
Therefore, if a man has a large and cumbersome residence, either in the city or in the country, and converts it into three apartments and lets in two tenants on the ground that he cannot operate the house, domestic staff no longer being available, and subsequently sells the house and moves from the country to Dublin, is he deemed to be dealing in property for the purpose of this section?
He would be deemed in those circumstances.
And would be charged tax on the appreciation in the value of the structure?
As part of his income.
Is that not a very daft arrangement, if the Minister stops to think of it? Surely he should consider this position. There are in Ireland at present, in rural Ireland particularly, and indeed in the city, a lot of large, unmanageable houses which could be worked as long as domestic staff was available. Domestic staff no longer being available, the owner can do either of two things. He can take the roof off the house and abandon his home or convert it into two or three flats, retaining one for himself and letting two to two of his neighbours, which incidentally creates additional residences for families who otherwise would have to get housing elsewhere. With the passage of time, the person determines to move from the country to the city and the business, profession or whatever it is, is passed on to a son, to the future generation who have their own accommodation. The owner sells the house which now consists of three apartments and goes to live in Dublin. Is he to be charged with the difference, which is to be assessed I do not know how, between what the house was worth before he changed it into three flats and what it is now worth?
In a case like that, they would be in the house for over six years.
They might and they might not. It seems to me a hardship that if, instead of taking the roof off the house, a person converts it into three dwellings in which three families can live, he is to be told that, as a result of an accretion in the value of the house of £1,000, having sold it and made a profit, he must therefore pay tax on it. That does not seem to me to be equitable or sensible.
I intend to relieve cases like that in which a profit of £1,000 would be made.
Up to £1,000?
Yes, and over £1,000, the £1,000 would be ignored.
How is the value of the old house arrived at before work is begun on it? Is there some arbitrary valuation placed on the house before it was converted or is the sale price taken as its value?
It is the market value five years before.
The market value of one of the large houses I have in mind is minus £500 at present. It would nearly pay anybody £500 to take it down. I know of several, but the trouble is that one cannot get them taken down. Many people with such houses would cheerfully take the roof off if they were free to do so but it cannot be done. The valuation commissioners are apprised of this problem. If you have a large house in rural Ireland and you go to the valuation commissioners today, in almost every case they will substantially reduce the poor law valuation of the house in order to make it possible for people to retain it and not constrain them to take the roof off in order to avoid the impact of the present burden of rates. They recognise that these large houses which may be in reasonably good condition are now a liability rather than an asset. If a realistic sale value were taken or if the value placed by the commissioners of valuation on such a house were taken before adaptation and if that were compared with the value that might be realised after conversion, a very heavy burden might be thrown on the person who had done what, in my judgment, was the public-spirited and sensible thing to do, that is, to convert these big gazebos into three or four manageable apartments which are badly wanted. These cases frequently arise with dispensary doctors or country solicitors, and so on, who have inherited these big houses which in modern times are quite unmanageable and yet in many cases eminently susceptible to useful adaptation.
It might facilitate Deputies to discuss the amendments and dispose of them.
I thought we had got so far out of order that we should keep out of order.
I think we had better not.
There was an exclusion provided here by the Minister.
We have reached amendment 56 and I suggest we should confine our discussion to the terms of that amendment. Does Deputy Sweetman wish to speak?
I want to get on to the section.
We had better dispose of the amendment first.
On amendment 56, Deputy Dillon mentioned the case of a person who has made a profit of £2,000. This person is taking a risk. If he makes a profit, he is subject to tax, but if he loses he gets nothing in return.
There might be relief for income tax purposes.
He might never do this again. He has tried once and he loses. If he makes a profit, tax may be imposed at the rate of 10/- in the £. He has gained nothing and this provision is killing enterprise in the provision of flats and in building.
We are still discussing the amendment.
I want to make this case on subparagraph (iii) of amendment No. 56. We add subparagraph (a) and subparagraph (b) and now the Minister proposes to add a new subparagraph, (b) (iii). This section and these subparagraphs are designed to exclude from the general operation of the tax proposed certain specific categories. Subparagraph (b) (iii) reads:
the Revenue Commissioners, or on appeal the Special Commissioners, are satisfied that the building was constructed or reconstructed for exclusive occupation by the person as a farmhouse or farm building for the purpose of farming the land and was in fact so occupied for substantially the whole of the period from the time when the construction or reconstruction was completed to the time when the interest was disposed of.
That is the Minister's proposed additional exemption to the general operation of the section. I now say to him that I do not think these exemptions go far enough and I am asking if he would consider between now and Report Stage adding a further paragraph to exempt large unmanageable houses of the kind I have mentioned. I have directed the attention of the Minister for Finance to the fact that his own commissioners of valuation have brought the valuation of these houses down to a minimum in order to persuade people not to pull them down or to leave them derelict.
Does line 35 apply only after the passing of the Act, in relation to the acquisition of an interest?
It applies to the taxable year 1965-66.
Therefore, a person could not have an old house at present and be caught? It is only where he constructs a new house?
Or reconstructs.
Or reconstructs an old house.
This does not apply to any house at present in the possession of anybody?
If he does not develop it after the passing of the Act.
No matter when he gets it?
Yes—no matter when he gets it.
Where is the reconstruction wording? It is not in the section.
If you have this house and carry out the reconstruction after the Bill becomes law, you become liable to this charge. The Minister ought to consider providing a paragraph (b) (iv) to deal with this specific problem which the Commissioners of Valuation already recognise and provide for in their procedure. People who intend doing such reconstruction work will be advised not to touch it or otherwise they will bring themselves within section 39 of the Finance Act of 1965. I want the Minister to create a situation in which the advisers of such people will say to them that they are all right, that if they adapt their houses into two, three, four or five dwellings, they are free from this tax.
When you start to create situations of this nature, you are going to widen the loopholes so that a whole flood will come through them. That is always the difficulty in creating such special situations. I will have another look at this between now and Report Stage and if I can do something to restrict the tax, I will do so.
To a person really dealing in land and buildings.
Yes.
May I deal now with the section generally?
We are on amendment No. 56. I would like to deal with the amendments and dispose of them and the other points may then be raised on the section. We will reach the section when the amendments have been disposed of.
Amendment No. 56 agreed to.
I move amendment No. 57:—
In page 32, subsection 3 (b), to add a new subparagraph as follows:—
"(iii) The foregoing provisions of this subsection shall not apply to a holiday residence so used by an individual or his family."
The purpose of the amendment is to exclude a holiday residence from the provisions of the section where it is used by an individual or his family. The Minister will be aware from what has been said that where a person has a holiday residence, a seaside bungalow or small house, or a bungalow even in a rural part of the country which he uses as a temporary residence for himself or his family, it is our view that such a residence should be exempt. In certain circumstances a person may dispose of such a place but generally they are retained in a family, possibly for a very considerable period.
The point has already been made by Deputy Sweetman that the same exemption should apply to the children of the occupier. In many of these cases the individual who purchases the house, or who may be the owner, may, in practice, use the house or bungalow less than the members of his family. He may be occupied in his business or profession and may allow a married son or daughter to use the place over a period. For that reason, we believe that this type of residence should be exempt because it is not by any stretch of imagination comparable with the development of land which the section is designed to catch. There is a strong case for arguing in favour of exempting any holiday residence or seaside apartments used for the purposes of an individual or his family during a certain portion of the year, or, indeed, for the greater part of it.
Again you can give rise to all kinds of avoidance contrivances on this. One must define what a holiday residence is. It does not necessarily mean a seaside bungalow or house. I might live close to the sea and have a holiday residence in Dublin. Having acquired that residence, I could sell it and acquire another residence and allege that this was a holiday residence, too. It would not be possible to define what a holiday residence is. In any event, in a case such as described by Deputy Cosgrave, the relief which I propose to give of £1,000 would exclude it.
Did the Minister say £2,000?
No. It is an accretion in value of £1,000.
During the last five years the accretion in value of property would be more than £1,000. There has been a substantial rise in value in the past few years.
Ignoring the proposed accretion in value, the Deputy will appreciate that the amendment does not suit.
I know it is not easy to frame an amendment of this sort.
I am not commenting on the wording of the amendment.
On the question of accretion of value, realising the drop in the value of money over the past few years, an accretion of £1,000 could occur in a very short period. Perhaps the Minister would consider increasing that £1,000 to double the figure.
Under subsection 3 (b) (i) assessment is not made if he has occupied the house for a period of six years.
That is, six years after construction?
Yes.
If you have been in it for five years, you are caught. You have to have it for six years after the end of your work.
Would the Minister not consider five years from the commencement of the construction work?
I do not think the Deputy means that.
I have a suggestion to make which might take the Minister and the Opposition out of their problem.
We are not in any problem.
You are. Section 39 states ...
We are discussing amendment No. 57.
This is really relevant to amendment No. 57, Section 39 (4) (b) states:—
In any other case tax in respect of the profits or gains of a business in dealing in or developing land shall be charged under Case VI of Schedule D.
I am putting it to the Minister and to the Opposition that if you wipe out Case VI, you wipe out half the amendments. If the Minister makes an act of faith and changes his amendment from 12 months, it will be exempt from Case 1. Case 1 is the profits of trade or a venture in the nature of trade. As far as I can see Deputy Dillon's three-roomed house could become a hotel. Let us clearly take Case 6 out of it and, on Report Stage, you will have a significant amendment on Part VII. That is the point I am making.
If I set up a company now and contrive in this period of repeal to build a big block of flats, an office block or something else, I can, having done that, sell the block and get out of business.
You must be in trade.
Did I understand the Deputy to suggest that the Minister should chance his arm for 12 months?
By the deletion of Case 6.
I do not think the Minister should be encouraged to chance his arm.
The Minister talks about someone forming a company and then doing a major development work. These people could not possibly contend they were doing anything other than the business of developing land. Obviously they must have been formed for that purpose and the fact that they have completed the job and then maybe gone into liquidation does not affect the issue. The only people we are worried about are isolated individuals doing small jobs. I agree with Deputy Lenihan in this. I do not think excluding Case 6 is asking the Minister to take any risk at all because the collectors of taxes will be well able to catch those really engaged in land development and not just doing small jobs on farms and private houses. The exclusion of Case 6 really only relieves the small private individual doing an odd job.
Amendment, by leave, withdrawn.
I move amendment No. 57a:
In subsection (4), page 33, line 19, to delete "business in" and substitute "business of."
This is a drafting amendment.
Amendment agreed to.
Question proposed:—"That section 39, as amended, stand part of the Bill".
First of all, I want to make it clear that, so far as I am concerned, I agree that section 6 of the 1935 Act was not workable because of the inclusion in it of the declaration of intention. I can see strong arguments being raised, therefore, on the point just made by Deputy Booth in relation to the formation of that particular company. One difficulty in relation to Standing Orders is that very often in a case like this, it is impossible to discuss amendments adequately until one knows exactly what the section means. There is, I think, considerable doubt in many minds as to what this section means. Certainly there is some doubt in my mind.
In subsection (2) there is reference to a person having an interest in land, that is to say, having an interest in land at the date this Bill is enacted. In subsection (3) there is a reference to a person having acquired an interest in land. It seems to me the difference between the two is that the first catches anybody who owns property today and the second catches the person who will acquire land after today. I think that needs to be clarified.
There is also some misunderstanding about the period of six years. As I interpret the section. the six-year period operates only after the reconstruction work has been done. The position, therefore, is that a person who has owned property for 25 years and disposes of that property between this and the enactment of the Bill can be caught, even though he does not know at all that the property is going to be developed. A person can go to someone who has owned property for the past 25 years and say to him: "I like your house. I want the privacy of your grounds. I want to go and live in your house," and the vendor sells in good faith, unaware that the purchaser has entered into a development arrangement. It seems quite clear from the wording of subsection (2) (b) that in that case the vendor is the person who will be liable for tax on his profit notwithstanding that he did not know he was selling the property for development purposes and notwithstanding that he believed he was selling it for occupation by the purchaser in the ordinary way.
This matter was raised with me as soon as the Bill was published. I understand it is a matter that is worrying another Dublin solicitor. He was sufficiently interested to get an opinion of senior counsel. The view of senior counsel is that the vendor in the case I have mentioned is caught and will have to pay tax. It is not for me to go into the niceties as between the Minister, Deputy P.J. Lenihan and Deputy Booth about Case 6. It is the Minister's job to solve that one, not mine; but it is my job on this side of the House to ensure that the genuine case is not caught. I know all about the law in relation to cases that are not genuine and the way in which the necessity to carry conviction through home to judgment in court meant that Case 6 was really to a large extent a holder in certain cases, particularly in cases in which people wanted to tell an untruth which could not be proved against them, and the manner in which, after that, it could be breached by liquidation.
The situation, as I see it, is that if a person buys land and then disposes of that land to a builder and the builder is able to charge in the cost of acquisition, then I accept that the Minister must find a method of ensuring that, in a case where the land has been bought in modern circumstances, what is allowed as a deduction, on the one hand, cannot get away as a tax free profit on the other. If it can, we would drive a coach and four through the whole question of all builders' profits. I must be realistic about that. It is entirely wrong, however, to take into that net people who have been, down through the years, living in the house for themselves. The six year period of exclusive occupation after reconstruction does not get them out of it.
The section and this Part of the Bill should be so framed as to ensure that anybody who is in a house and living in it at the date of the passing of the Act is able to dispose of it afterwards. If that were done, you would not have the difficulty in the case mentioned by Deputy Dillon, or the difficulty that arises in the case I mentioned where a vendor can be caught willy-nilly. As the Part stands, it goes far further than is warranted and, I believe, goes further than the Minister intends.
What is the effect of this going to be? Let the Minister consider this: if the person who is genuinely in occupation of a fringe house and lands, or a farm and lands around Dublin, where there is a desperate shortage of land, is to be caught for income tax and surtax then he is not going to sell and there will be an even greater shortage of building lands. The Minister's remedy, for tax purposes, is going to provide a very much worse social and economic evil. The Minister knows from the time he was in Industry and Commerce that one of the main causes of the increase in the price of houses has been the shortage of building sites. If a person who has been living in a place for a long time is not to be able to sell without being caught for income tax and surtax, all of which is piled into one year, then he will not sell at all and the Minister, the House and the country, will have a much worse problem in relation to building lands.
There is also the point which the Minister can take as being reasonably clear, that the way he has drafted section 39 (b) catches an innocent vendor. I do not believe he intended to do that but undoubtedly he has done it. There is, in some people's minds, the idea that we should take the value as at the 1st April, 1965, and run that through. That was the basis of the recent capital gains tax in Britain. I do not think that is desirable. I do not think a capital gains tax is desirable here. I accept that the Minister had to do something to strengthen section 6 of the 1935 Act but in doing sofi he should not catch the innocent cases.
Subsection (2) (b) specifically refers to a person who disposes of an interest to another person and that other person has, at the time or before he purchases, entered into a contract to develop or makes some arrangement——
How does the vendor know?
It is hardly likely——
It can be, very definitely.
——that a person would stand on the side of the road and look at property——
I know something about this from the trade point of view and it is often done. I have often sent a solicitor to buy a house for a person and the vendor did not know for what purpose I wanted it. If I disclosed that, he might have put up the price.
You dare not disclose that you wanted it for development.
I should like to put this point to the Minister. If you take the rate at which Dublin, say, is expanding, the time could come when the green belt would become available for building. That might be pretty soon. If somebody in that area sold land, he would not be getting the sort of building land prices at the time and he, in his innocence, would be subject to this tax.
There is more than innocence involved in this; the question of social obligation is involved. Land becomes valuable to a large extent by reason of public investment in surrounding areas.
If the Minister is making that case, then he wants this as a capital gains tax and we are on to a different thing. I understood the whole thing——
Please, I am answering a question raised by Deputy Crowley about development reaching out to him. That is the answer to that point. The ratepayers have contributed to that development. We are dealing with something else.
It is a capital gains tax that he wants this for.
No. I am talking about a tax on incomes by reason of selling or developing property.
But when the person sells the property, he does not know at the time that it is going to be for development. Ultimately he discovers he is liable for tax as a result of green belt land coming within the ambit of building.
I am talking about a person who sells a house or land, or a house with land, for development, and the developer has entered into an arrangement in advance of the sale to develop it. It is reasonable that the person who sells knows exactly what the purpose of this is and usually the price is fixed accordingly. As Deputy Sweetman says, the person who develops the land will be subject to tax on the profits he makes out of his activities. He may deduct whatever he paid for it from these profits but the person who has got the sum which is deducted should be liable to tax, too, because that is income in connection with development. The section is designed to catch cases like that.
As far as the period of operation is concerned, the tax year of assessment will be 1965/66. As Deputies know, accounts for the year preceding are what are looked into for the purpose of the year of collection, 1965/66. Therefore, if a man had carried out this transaction and had made up his accounts to the end of last March and if this were a transaction within that period, the 1965/66 assessment year would catch that transaction. That answers Deputy Sweetman's point about the time.
I do not think it does. Specific examples are much better. A man I know well bought a place in 1925 for £5,000. He has lived in that place since 1925, within the meaning of "exclusive occupation" as it is in the section here. If he sells that place for £15,000 the day after the Bill becomes law, openly for the purpose of development, will he be charged income tax and surtax on the £10,000 profit, and if not, why not?
In fact, what he is getting is merely what he paid.
That is why I picked the figures like that.
The relation to £5,000 would be to the market value five years before the transaction.
He paid £5,000 for the property in 1925. We will assume that the Act becomes law on 31st July of this year, to make it easy. We will assume that the market value of that, on 31st July, 1962, was £12,000. He sells it on 1st August, 1965, for £15,000. He has lived there consistently, continuously and in exclusive occupation since he bought it in 1925. Will he have to pay income tax and surtax on the £3,000 difference between 1962 and 1965?
If it were an ordinary sale, he would be exempt.
Where? That is what I want to know.
Because of his residence in it.
He is selling it for development. He has nothing to do with the development in any shape or form. He is just selling it for development. He knows the man who is buying the property and who will develop it.
Will he not be caught under 2 (b)?
Yes.
A straight capital gains tax.
If he sold it to somebody who was not going to develop it, would he have to pay the tax?
No.
If he were to sell it to me for £15,000 and I do not develop it and I sell it for £15,000 to Deputy Corish, who will pay the tax in that case?
Who will develop it?
Deputy Corish will develop it. I buy it for £15,000 and sell it to Deputy Corish for £16,000. What happens to the case where you put a company or a person in between?
I saw that loophole but I did not mention it.
The person who sells to the developer will be taxed.
As Deputy Norton.
If he makes no profit——
Mr. Belton
There is no point in the Bill at all, then.
If that is so, we can all drive a coach and four through this.
Wait a while.
On the question of values, this would affect land for development as well as the other matter.
Certainly.
Since 1960, land has nearly doubled in value. I can give the Minister particulars of actual transactions in land. In 1960, a sum of £3,500 was paid for 66 acres. In 1965, those 66 acres fetched a sum of £6,600. A 55-acre farm fetched £3,000 in 1960 and £5,500 in 1965.
Inflation.
These are actual increases in the value of land since 1960.
It is an apparent increase in the value of land equally explicable by a drop in the value of money and land retaining its real value. In those circumstances, there will be visited the penalty of income tax although the person disposing is getting in or about the real value of what he paid for the land in question.
Will it be possible to decide now how much of the increased value is attributable to a rise in land values and house property values and how much is in connection with the addition of an extra room at the back, or something like that? If anybody develops his land in the country—and that does not mean necessarily taking virgin land and building a house upon it—or if you transform a holding in any way and make it usable for a different purpose, it may become of more value. I cannot see how you will decide how such of the increased value is due to the alteration which was carried out and how much is due to the change in the value of money. It is very much a matter of opinion and bargaining but it does not seem to me to be a fair basis on which to assess tax.
Will the Minister undertake to bring in, between now and Report Stage, an amendment excluding from the operation of this section any case in which the house or the land or the house and land was in fact in the exclusive occupation of the vendor on the day that he, the Minister, stood up in this House on Budget day and announced that he was repealing section 6 and changing the terms of it? That is not a question of intention. That is a factual question that can be decided in the first place by the Special Commissioners and, after that, by the circuit court. If he amends it as that if a person was himself in exclusive occupation on Budget day—even if the Minister wants a short period before that so as to avoid the proof of one particular day—then it means he will exclude by that, anyway, all the genuine cases of people who have houses and lands and who have not been acquiring them for their own so-called intention to develop but in fact really for occupation.
That is a reasonable suggestion. I shall consider it.
On the outskirts of Dublin, there is land that cannot be built on at the moment. Suppose the Government or the corporation decide they will build on it and some speculator or builder comes out to a farmer and says: "The value of farming land around Dublin is about £300 to £350 an acre. I shall give you £500." He cannot build by law and does not see any future in building on it. However, this is suddenly changed and the seller of the land is absolutely robbed. Then the Revenue Commissioners take a tax off him, although the land in question might have been purchased two generations back for £1,000 or about £20 an acre. In this case, he will be taxed on the difference between whatever he paid for it and whatever he received from the speculator, although he did not know the land was going for speculative purposes. Consequently, in the one year, he is taxed on his profit. Suppose that, at the moment, you have a farm on the Dublin mountains. With the building going out every year, the value of such property is increasing. Surely the tax should be worked out over the number of years rather than surtax and supertax, and so on? Surely everything should be worked out and he should be taxed over the period of years during which he was in residence of the property?
Then again, if a man is a farmer, say on Griffith Avenue, Dublin, and wants to hold on to his farm all his life. Suppose the corporation say they will compulsorily acquire his land. He does not want to sell it. He wants to enjoy it and to make his money out of farming it. If the corporation acquired that land compulsorily and he gets the market value, he does not want to sell it, but he is obliged to do so, and is taxed.
I do not think he would be taxed in the third case the Deputy cited.
Why not?
It is the same as a farm.
Subsection (2) (b) refers to a prior contract for development.
The corporation compulsorily acquired. They are buying it for development, knowing they are buying it for development. Surely the seller, then, is caught.
And the value has been increased.
The acquisition is in pursuance of intention to develop the land.
That is a point that can be looked into. I would have assumed that in that case there would not have been a prior contract with somebody else to develop. However, there is a case there to be looked into. I do not know what the Deputy means by his reference to the green belt.
In certain areas around Dublin one cannot build. Eventually they will have to jump the green belt. A person buying property there now is taking a considerable risk. He has to pay £600 an acre for land worth, at present utility value, £350 an acre.
That was my point in relation to agricultural land.
The farmer will be all right, but the speculator will be caught.
The present owner will be all right anyway, if the Minister brings in the amendment I have asked for.
Deputy Belton is talking about any time—years hence.
You have got to clear the people who are there today.
As I have said, I shall give attention to this point. On the other hand, the point about tax cannot be taken into account at all because you could not level out a gain over a long period.
Surely there should be an allowance. The land has been appreciating in value over the years as building approaches nearer and nearer. A man could sell it three years earlier when it could not be developed. He will get away with that. The purchaser cannot make any agreement with the corporation because there is no solution to the building problem. Why not have an abatement of tax over, say, a period of five years instead of one year? Otherwise land will not be sold at all. It comes to the point Deputy Sweetman made that land will not be sold.
How will Deputy Sweetman's amendment cover the man who sells land as agricultural land?
My main interest is to protect everybody who is bona fide in occupation of a house and land or of land alone on Budget day. To tax anybody in exclusive occupation on Budget day because of prospective development on his land afterwards is tantamount to a capital gains tax. The Minister has given an undertaking that he will cover that. However, there will be other cases where people will, after Budget day, buy land and houses and dispose of them later, as Deputy Belton has said. There should be an arrangement entitling them to spread their gain over all the years from the date of their purchase to the date of their sale.
If they have bought for speculation, certainly they should be caught but why should it be concertina-ed into one year? Deputy Belton's suggestion for a spread over is perfectly reasonable. I can understand the Minister's anxiety to ensure that sums taken as a deduction from profits will not be allowed as capital free gains in the hands of another person. That is understandable. Trying to prevent avoidance by that simple means does not require the services of a technically clever man. We must be quite sure that we shall not either attack the innocent case—in this context everybody was innocent on Budget day—or the person who genuinely buys and farms land which, 20 years hence, is acquired for development. It is wrong that that man should have to pay in that one year sums running right up to the top of the surcharge scale. There must be in the Bill, to cover cases of purchase, a provision by which a person is entitled to spread tax over the years that have elapsed since he acquired the land. That seems only reasonable.
Would that not give rise to a claim that high income in a given year should be levelled out against low income in another year or other years?
Land could be worth £25,000 or £30,000 as farming land. It could be sold at a price of £120,000 to £140,000 as building land. If a man sells and is taxed on the higher price, he will be better off if, when selling, he puts a stipulation in the lease that the land should not be built on ever. He will be better off keeping the leasehold and charging £10 a year ground rent. As I have said, if this provision is not spread over the years, such land will not be sold for building.
If a man buys anything that appreciates in value—a picture, shall we say—and after five years sells that picture, this provision will reduce the profit he made on that picture to an annual profit. Anything brought into the income tax or surtax sphere is brought in because it is deemed to be an annual profit. When the person has sold his picture, is it not the proper conception of the profit he made that it should be divisible by, say, five and that he would be called on to pay one-fifth in each of the years?
This is a different context. The Deputy is talking about an isolated instance.
The reason the Minister introduced section 39 is that he wants to make a once-only transaction deemed an annual profit.
In certain circumstances.
I do not quite agree with the Minister there. I think the proper way to put it is that he wants to make it an annual profit except in certain circumstances, which is a different way of putting it, but he does want to make a single transaction, in certain circumstances, an annual profit. If he wants to make it an annual profit, then he must make it an annual profit when it is to his disadvantage as well as when it is to his advantage and the way to make it an annual profit is to average it from the date of purchase provided such date of purchase was after Budget day.
The Minister certainly should have a look at these things.
I am having a look.
I do not think you will get land for building in the city of Dublin or in any other city, if the people realise what they will have to pay.
I will have regard to that point made by Deputy Belton.
The Minister has said that he was considering having £1,000 profit tax free. That might be adequate in cases of very small houses, seaside residences, and so on. Would it not be possible to work out some percentage because, to follow what Deputy Belton has said, I also feel that there is a danger that we may discourage land from coming on the market for development? Certainly around my constituency that is a very real problem. I can see that a tax free profit of £1,000 might be attractive in a very small case but it will mean nothing if a man is disposing of a fairly large acreage. I would hope that people who have control of fairly large acreages of land around the city would be encouraged to sell them for development, rather than the reverse. If we could say that any profit below a certain percentage would be tax free, that might be an incentive to people to put their land on the market for development but £1,000 is neither here nor there.
Something on the lines of Deputy Booth's suggestion could be worked out, but it would need to be reasonably big, say, over a period of four or five years that he would pay only half the tax and no surtax, or something like that. Any accountant could work out that the stage could be reached where it would be better for a man to sell his land for farming than to build on it. We have not reached that stage yet but we are near it. If the owner could be encouraged to sell for development by the fact that he could make a profit, he would prefer to sell it for building rather than for farming. The incentive could be a 50 per cent reduction in tax or no surtax.
Last night I suggested, and I thought it was accepted, that I could exclude a profit of £1,000 in the case of a sale that would be caught by the section as it stands. Today, I told Deputy Sweetman that I would consider his point about the date of operation. I told Deputy Belton that I would consider his point about the difficulty that might arise from the social point of view in obtaining land for building purposes. Then Deputy Booth comes in and wants to have an escalator used for relieving profits. When a person is being reasonable, surely the House can accept it. I can stand on the section.
That would be unreasonable.
I did not realise that the Minister had agreed with Deputy Belton.
It is just like tax avoidance. Every loophole is availed of.
The Minister must accept that up to this afternoon we were discussing this section as being a tax avoidance section. It appeared, after expression of opinion by a number of Deputies, that, in fact, there was a big capital gains principle involved and it was when that became clear that the Minister himself recognised the danger and agreed to look at these things.
The Minister must admit that after hearing the explanation I ventured to give he had to regard the section as being different from what he thought it was. We all had.
When arguments are made, one is expected to listen to them.
When one hears specific cases, it is much easier to understand complicated sections.
Question put and agreed to.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."
Could the Minister tell me, please, in relation to subsection (2) paragraph (c) (iii), why he has not provided for fee farm rent?
Fee farm interest is a leasehold interest, is it not?
No. It should have been in lines 54 to 56.
Paragraph (c) (iii) could possibly cover fee farm interest where the interest is not a leasehold.
It should be in (c) (ii), should it not? Paragraph (c) (ii) should have been:
where the interest is a leasehold interest or where it is a freehold interest subject to a fee farm rent....
If it is not covered by (c), I will see if it is necessary to have it covered in (ii).
Would the Minister mind explaining paragraph (f) on page 34?
A person might have acquired land by purchase or otherwise, say, 15 years ago. At the time when he acquired it, he might not have been engaged in dealing in or developing land. He might, for example, have utilised the land for a number of years afterwards for agriculture. If at a later stage he developed the land by building, it would be inequitable to take the original value of the land as trading stock on his accounts. The broad effect of the paragraph is that if a person sets about developing or disposing of the land within five years of the time he acquired it, the actual cost of acquisition or, where the land was not purchased, the market value at the time of acquisition, is to be the initial valuation of the land as trading stock. In any other case, the initial valuation is to be the market value five years before the person embarked on developing it.
That is what I understood. Does it not accentuate the arguments I made on section 39?
It lends some strength to them, certainly.
Question put and agreed to.
Section 41 agreed to.
SECTION 42.
I move amendment No. 58:
In page 35, to delete "Where, before or after the passing of this Act," in line 29 and in line 51 and to substitute in each case "For the purposes of an assessment for any year beginning on the 6th day of April, 1965, or on any succeeding 6th day of April, where".
Perhaps, by agreement, amendments 59 and 60 could be discussed with amendment No. 58.
The Minister has met me, except for a year.
The Minister has not completely met amendment No. 59.
Exception was taken on the Second Stage to the words "whether before or after the passing of the Act". I am advised that in any event section 64 (7) governs the time of application of all the provisions in the Bill. Nevertheless, I have decided, in order to ensure that nobody would be left in any doubt by reason of the opening words of the section "whether before or after the passing of the Act", to put in the specific year of assessment: "For the purposes of an assessment for any year beginning on the 6th day of April, 1965, or on any succeeding 6th day of April..." That ensures that there is no retrospective element that is strange to tax legislation.
What is the purpose of "assessment for any year beginning"?
The assessment for 1965-66. As the Deputy knows, in a continuing business—I think I mentioned this casually a while ago—the profits of the preceding year are assessed in the year 1965-66 and tax is payable on them in that year, and there is ample judicial authority for this practice. There is the case with which I am sure Deputy Sweetman and Deputy O'Higgins are familiar, Connolly v. Birch, in which the judge held that the profits taxed in respect of a year before the assessment year were properly taxed. This gives effect in words to the same principle.
It is only a basis?
That is all.
It means, in effect, that in the current year you cannot claim for a fake purchase price last year?
That is right. I wish to draw attention to the fact that there is a misprint in the fourth line of the amendment. The words "or an any" should read "or on any".
Amendment agreed to.
Amendment No. 59 not moved.
Amendment No. 60 not moved.
Question proposed: "That section 42, as amended, stand part of the Bill".
When Revenue are entitled to go back on the deal and reassess it at market value, I assume if it is reassessed for one purpose, it must be equally reassessed for another, and that if there is occasion to tax the other party to the transaction, then the amounts in that party case must also be reassessed.
I understand the section applies only where one party is taxable and the other is not. It does not apply where both parties are taxable. The idea is to ascertain the taxability of the liable party.
I shall think about it between now and Report Stage.