asked the Minister for Finance whether the rate of income tax payable by building societies in respect of investors' dividends is similar to that payable by individuals personally taxed on this form of income.
Ceisteanna—Questions. Oral Answers. - Income Tax Payments by Building Societies.
70.
I presume the Deputy has in mind the rate of Income Tax on interest to shareholders and depositors payable by those building societies which have entered into an arrangement with the Revenue Commissioners. The rate in question is fixed so that the amount of tax payable by the societies will approximate, as nearly as may be to the aggregate amount of tax which would be payable by the shareholders and depositors if they were individually charged. I may add that recipients of interest account directly for any sur-tax for which they may be liable.
I am not quite clear as to what is meant by the reply. The statement has been made that building societies paying tax in respect of individual investments pay, in fact, less tax than the individual investor would if he received the total interest on his investment, with the result that the building society, or other similar agency, has a greater profit in its interest rate.
Perhaps I had better write to the Deputy about this.
It is a public matter. A few sentences should clarify the situation.
If the Deputy got a letter, he would be free to do what he liked with it. It is not possible to clarify this in a few sentences. Building societies can, and most of them have done so, enter into an arrangement with the Revenue Commissioners, the main purpose of which arrangement is to convenience small depositors and to ensure that they are not put to the trouble of claiming a refund of tax deducted, for which they would not normally be liable, and, at the same time, to ensure that the Revenue Commissioners get the same net amount of revenue. This reduced rate is applicable only to a certain amount of interest which the building societies pay.
There is some substance in the rumour then.
Is it not true to say that the small investor would not be liable for tax at all?
Many small investors are not liable.
So that, if a small investor were to invest money, he would have to pay the tax the same as the person who is liable to taxation?
The small depositor with a building society is often not liable for any income tax. If the normal arrangement were to apply, the interest would be paid to him subject to tax deduction and he would then be put to the inconvenience of claiming a refund from the Revenue Commissioners. In order to obviate this, the arrangement is entered into under which the building societies can pay these depositors in full and they then account for a reduced amount to the Revenue Commissioners.
Is it not true to say that it is only investors who are liable for income tax who invest in building societies?
No.
Surely no man would be so foolish as to invest in a building society when he could get a much higher price for his money elsewhere.
The Deputy is quite wrong.
Only those liable for income tax would invest in a building society.
No. Building societies have to pay income tax on undistributed profits at the standard rate and on investments exceeding £5,000. Therefore, in so far as the persons concerned are not small depositors, the ordinary arrangements apply. It is to facilitate the bulk of depositors, who are, in fact, holders of small deposits, many of whom would not be liable to tax, that this arrangement is entered into.
I appreciate the Minister's efforts to clarify this complex question. Is he not aware that this concession was designed originally to mobilise small savings for the building of houses for those who needed them? Is he aware that these facilities are in isolated cases being used at present for mobilisation of small savings for the erection of office blocks and comveste mercial buildings by the private speculator and these preferential terms are now being made available to such persons for a purpose far different from that envisaged in the original scheme?
The arrangement is designed to ensure that building societies get nothing out of it. The Revenue Commissioners get, in fact, the same amounts they would get if the normal arrangements applied and the small depositor claimed back the tax deducted. In any event, this particular arrangement is due to terminate in 1968-69 and we shall then be looking at the whole position in relation to building societies and their tax arrangements. It is not part of my function to look into the aspect mentioned by Deputy Dillon, but I have no evidence that building societies are devoting any substantial proportion of their funds to purposes other than to mortgages on dwelling houses.
A very limited number of recently instituted building societies are operating after a different fashion. The Minister for Labour when he was Minister for Industry and Commerce had, I think, some information about this. At least he told me he had.
I remember disapproving of something, but I do not remember what it was.
Disapproving, and thereby acknowledging its existence.