Maybe we should look at it between now and Report Stage.
Private Members' Business. - Finance (Miscellaneous Provisions) Bill, 1967: Committee Stage (Resumed).
Debate resumed on the following amendment:
To add a new subsection as follows:
"(3) The appeal commissioners shall be appointed by the Government and shall hold office during good behaviour."
—(Deputy J.A. Costello.)
I have no authority to withdraw it, and the Minister knows that without authority one cannot withdraw an amendment that has been moved by somebody else—unless the Minister is seriously suggesting that he will change it between now and Report Stage.
Amendment put and declared lost.
Question proposed: "That section 1 stand part of the Bill."
I do not understand the necessity for the second paragraph of subsection (2). Surely there is no person who is a commissioner for the special purposes of the Income Tax Acts today before the Act goes through, who was not appointed as such commissioner by the Minister for Finance? How could he get his appointment if he was? Was he appointed by the Government or by the Taoiseach, as Deputy Costello wanted?
Revenue Commissioners are ex officio Special Commissioners.
But they were also appointed by the Minister for Finance.
Not as Special Commissioners. They were appointed Revenue Commissioners and by virtue of that, they are ex officio Special Commissioners, and we do not want to make them Appeals Commissioners.
I agree, but I should like the Minister to have a look at this draft again. I am not clear that it does what the Minister wants to do because it says "his appointment as such Commissioner"—such Commissioner who was a Revenue Commissioner and is also a Special Commissioner. As I understand it, what the Minister wants to do is to provide in this section that only the Special Commissioners will be Appeals Commissioners.
That is right.
I am not clear about it.
I think it is all right, but if the Deputy has doubts, we shall look at it.
I am not a bit sure that it does that.
Question put and agreed to.
SECTION 2.
I move amendment No. 2:
In page 3, line 33, after "officer" to insert "not below the rank of inspector".
Amendments Nos. 2 and 3 are related and may be taken together.
It seems to me we would all be in favour of reasonable delegation by the Revenue Commissioners but that it would not be reasonable to delegate below a certain rank the tasks that up to this have been the sole function of the Commissioners themselves. I do not want to suggest for a moment that the Revenue Commissioners are likely to delegate to the office boy. Of course they are not, but there is an important principle involved here that we should retain in the Act, and that principle is that we should not delegate functions of the Revenue Commissioners as such to a person below the rank of inspector.
The Minister is well aware that in many other pieces of legislation there is a similar provision that one cannot go too much below a certain rank, and it seems to me that this is par excellence a case in which that principle should be protected. As I understand it, the inspector of taxes is the one grade for this class of work and certainly one should not go below it. The effect of the amendment would be to protect in the statute a principle that is vital, even though I am not going to suggest for an instant that it is likely to be abrogated in practice.
I want to suggest to the House that neither of these two amendments is really necessary. In fact it might cause us difficulty if we were to adopt them. In the first place, I should like to refer to a technical point, that is, that there are officers in the Revenue who would have the same standing and status as an inspector of taxes but who are not actually inspectors, and it would be quite unrealistic to suggest that these officers should not be trusted with the responsibility of making assessments.
Apart from that, there is the fact that we hope to continue to streamline the whole administration of Revenue. As Deputies know, we are very well advanced with the programme of computerisation. Before very long we might be delegating the power to make assessments not alone to this officer or that officer but to computers. Therefore, this would be unnecessarily restrictive on the Revenue in their attempts to streamline the administration and achieve economies of staff. Deputy Sweetman said himself he is prepared to accept that the Revenue authorities will not delegate lightly or without due consideration, and I think he might perhaps rely on their discretion in this regard without putting a strict statutory limitation on the extent to which they can delegate.
I am intrigued by the Minister's suggestion that there are people who are of the status of inspectors but who are not inspectors. As I understand it, in a district where there is more than one inspector they all rank as inspectors and would all rank as inspectors for the purposes of this amendment. It would not be only the senior inspector in that district, and I cannot understand how any streamlining could be done below that. Even if a computer produces a result, there will have to be some certification by someone on it because it would be very wrong to dish it out from the computer without somebody accepting responsibility.
Whoever programmes the computer will be responsible.
Our assessments must show adequate detail and this is not going to get an assessment in one global figure of £X with tax of £Y. If the intention is to streamline it, this is far from it. In fact, it is the reverse. This will mean that the whole works will get bogged down by people raising queries.
There is another question I want to ask the Minister. So far as I know there is no statutory provision covering this matter. Is there anything, any custom or extra-statutory provision, whereby the rank to which the delegation is made is tabled in any shape or form? Nothing like that has been tabled here because this has never been done here before. In similar legislation is there any order that directs the rank below which it will be not delegated?
Does the Deputy mean any internal document of Revenue?
I think I have seen this before. I think it has something to do with the Diseases of Animals Acts. I cannot guarantee my memory on this. I think there is something that directs that the rank shall be such and such. If the Minister feels any great difficulty in accepting this in the statute itself, I would press him very hard to agree to it as an extra-statutory matter. A list of the authorised officers to whom the delegation was being made should be tabled in the House from time to time. As I understand it, the Revenue Commissioners will not say: "An officer called Michael Casey can do this." They will say that in the signing of an assessment or the taking of a decision about certain allowances, an officer of the rank of inspector or the equivalent will be entitled to act in the name of the Revenue Commissioners. If that type of prescription of delegation is in the Act, it should be available to the House so that if it is too low, the matter can appropriately be raised here.
We will consider that. On a point of information, there are many General Service officers on the staff of the Revenue Commissioners with a considerable amount of technical experience who are not actually inspectors of taxes but would rank below in the hierarchy.
They would rank below?
They would rank below an inspector of taxes.
It should be possible for the Minister's advisers with technical knowledge to grade it so that it would not go below the rank of inspector or the equivalent which would cover the situation. An assistant inspector is an inspector, I think. There are senior inspectors in districts with several others in the district who would be assistant inspectors.
These would be officers outside the inspectorate. They are called General Service officers.
Or the equivalent rank in seniority.
A great many of the assessments would be of a routine nature and we would hope there would be more and more as time goes on.
Perhaps the Minister would give some indication of the type of matter proposed to be dealt with by delegation.
I do not want to say in any positive way what we will or will not delegate. No doubt the vast body of assessments will be made by inspectors. A great deal of this work is becoming more and more automatic and capable of being mechanised or computerised. I feel that it will be possible as we streamline the organisation to take increasing blocks of assessments and have them handled more or less automatically. Someone at a higher level would naturally have responsibility.
For sending them out?
Yes, and the actual work would perhaps be done at quite a low level.
I think the Minister misunderstands me. I am not interested in the power of a man who signs an ordinary assessment based on a tot of the man's salary, his investments and so on. What I am worried about is the case where there is something unusual. At present the Revenue Commissioners say in their opinion it should be one thing or another. I do not want that discretionary opinion, if I may use a bad phrase, to be exercised by a person too low in the hierarchy.
The Deputy might leave it to the good sense of the Revenue Commissioners not to so delegate.
If that is so, will the Minister agree to put it on the Table so that we can look at it from time to time?
I do not like to agree to that off the cuff.
I will withdraw it and put it down on Report Stage to give the Minister an opportunity of getting wisdom in the interval.
Amendment, by leave, withdrawn.
Amendment No. 3 not moved.
Section 2 agreed to.
SECTION 3.
I move amendment No. 4:
To add to the section the following new subsection:
"(6) (a) Regulations (5), (6), (7) and (8) of the Regulations made by the Revenue Commissioners on the 13th day of September, 1929, are each hereby amended by the substitution of ‘Revenue Commissioners' for ‘Special Commissioners' and Regulation (10) thereof is hereby revoked.
(b) Regulation (9) of the Regulations made by the Revenue Commissioners on the 13th day of September, 1929, is hereby amended—
(i) by the substitution of ‘an inspector of taxes' for ‘the Special Commissioners',
(ii) by the substitution of ‘requires' for ‘require',
(iii) by the substitution of ‘him' for ‘them',
(iv) by the substitution of ‘the Revenue Commissioners' for ‘they' where the word firstly occurs,
(v) by the substitution of ‘the inspector of taxes or the Revenue Commissioners, as the case may be' for ‘they' where the word secondly occurs.
(c) The following Regulations:
(i) Regulation (4) of the Regulations made by the Revenue Commissioners on the 13th day of September, 1929,
(ii) Regulations 6, 8 and 12 (2) of the Income Tax (Purchased Life Annuities) Regulations, 1959,
(iii) Regulations 14 (2), (3) and (4), 15 (1), 16, 31 (5), 34 (6) and 44 (3) and (4) of the Income Tax (Employments) Regulations, 1960,
(iv) Regulation 6 of the Income Tax (Employments) (Surtax) Regulations, 1961,
are each hereby amended by the substitution of ‘Appeal Commissioners' for ‘Special Commissioners'.
(d) Regulations 14 (6), 31 (7) and 34 (7) of the Income Tax (Employments) Regulations, 1960, are each hereby amended by the substitution of ‘Appeal Commissioner' for ‘Special Commissioner'."
The purpose of this amendment is to provide that Regulations made by the Revenue Commissioners for the purpose of income tax and sur-tax will be so revised as to take account of the replacement of Special Commissioners by Appeal Commissioners in relation to appeals and the transfer of the administrative functions of the Special Commissioners to the Revenue Commissioners. It is consequential on the change from the Special Commissioners to the Appeal Commissioners.
I should like the Minister to answer one question. At the end of paragraph (6) (a), Regulation 10 is revoked. What is Regulation 10? I understand the amendment perfectly but I do not understand the revocation.
Regulation 10 provides that any notice to be given by the Special Commissioners under the Regulations may be signed by their clerk or any person authorised by them in that behalf. Consequent on the alterations of the Regulations dated 13th September, 1929, which are being effected by this amendment, notices under the Regulations will fall to be issued only by an inspector of taxes or the Revenue Commissioners.
This is one of the things that will be done by the delegated officials?
No. This will be done by an inspector of taxes.
Is he delegated now under (b) (i)? With that substitution, why is (1) revoked? I can understand amendments and substitutions, but I cannot understand why there is a revocation with a substitution in respect of that.
Did the Minister say Regulation 10 referred to the signing of a notice by an officer?
By the clerk. Up to now the notice had to be signed by the clerk to the Special Commissioners. That will not apply any more because the Special Commissioners will not have this type of function any more.
The situation will not arise.
No. Therefore, we have now got to have these things signed either by an inspector of taxes or by the Revenue Commissioners themselves.
That is why the Minister has done it in (b) (v). I understand that. You substituted in one place and you revoked in another.
The Minister revoked where there was power for a notice to be signed by the clerk to the Revenue Commissioners.
I do not understand Deputy Sweetman's difficulty.
It seems to me the Minister has everything he wants in (b) (1)—substitution (b) (2), substitution (b) (3) and the earlier part of (a). There is substitution there. I do not think it is of any great importance, but I was curious and the Minister has not satisfied my curiosity.
As I see it, Regulation 10 simply does not apply. It is not that it has been revoked. It is no longer of any significance and, therefore, it is better to take it out.
Regulations 5, 6, 7 and 8 describe the manner in which notices under section 21 of the Finance Act, 1922, are to be given to a company, or board, or shareholder of a company in cases in which liability to surtax is under consideration and, as the administrative functions of the Special Commissioners are now ceasing, we are proposing to substitute in these cases. Regulation 10 then is a different matter. It would be inappropriate to continue Regulation 10 now. It is just not relevant.
The Minister is leaving under the second part then the entire discretion as to whether there will be a dividend direction with the local inspector of taxes handling the matter and it will not go any higher. Is that not so?
No.
I misunderstood the Minister then as well as misunderstanding the section.
The administrative functions are now being transferred to the Revenue Commissioners.
By the substitution of an inspector of taxes.
No. In the case of Regulations 5, 6, 7 and 8, the Revenue Commissioners are being substituted for the Special Commissioners.
Within Regulation 9 of 13th September, 1929. I am a most reasonable man. The Minister has persuaded me he is right in respect of section 6 (a) but he has not persuaded me he is right in respect of 6 (b).
Is it paragraph (b) the Deputy is concerned with?
That is it. Does that not deal with section 21 directions?
No. It deals with notice under section 22, subsection (1) of the Finance Act, 1922, which is now section 527 of the Income Tax Act, 1967; these notices will now be issued by an inspector of taxes.
I am sorry. I still think——
The old section is replaced by section 527 of the Income Tax Act, 1967.
What does that provide?
It provides for notices under surtax directions.
Was not section 22 of the 1922 Act the section dealing with the manner of operating the decision contained under section 21; and section 22, from my recollection, was the only way in which the taxpayer knew what was happening?
The gist of it is that these notices which were formerly issued by the Special Commissioners will now be issued by an inspector of taxes. The Special Commissioners will no longer be concerned with the issue of them.
I agree with that, but I think it is a bad thing for the inspector who is dealing with the normal day-to-day administration of a company's accounts to have the right to take the very wide general power of issuing a direction as well. In such a case—it would be a very clear case in which it appeared desirable—it should go back to someone else.
There is a distinction here. The notices here under what is now paragraph 8 of Schedule 16 of the Income Tax Act, 1967, will still be issued by the Revenue Commissioners. I want to check for a moment what precisely they are.
Unfortunately I left my copy upstairs. Does the Minister see what I mean?
Yes, but I do not think the Deputy is right.
That could well be. I do not claim to be omniscient at all, but I want to be quite sure that a big decision like the giving of a direction——
This is just the ordinary assessment of surtax. That is all we are concerned with.
The Minister mentioned section 21 a moment ago.
Whatever it was, section 22 of the 1922 Act is now section 527 of the 1967 Act and it deals with ordinary surtax assessment. I will read it for the Deputy:
An inspector may, whether an assessment to surtax has been made or not, require any individual who has been required to make a return of his total income for the purposes of surtax to furnish to him within such time as he may prescribe, not being less than twenty-eight days, such particulars as to the several sources of his income and the amount arising from each source, and as to the nature and the amount of any deductions claimed to be allowed therefrom, as he considers necessary.
That is Regulation 9 of the Regulations of 13th September, 1929.
No. That is what section 22 of the Finance Act, 1922, now is. These notices will be issued now by an inspector of taxes.
But does Regulation 9 of the 1929 Regulations not refer to other powers as well?
I do not think so.
I am prepared to agree that the House adjourn for a little time to enable the Minister to look this up, if he so desires.
I am almost certain that Regulation 9 is concerned with the ordinary surtax assessment, the requirement of information, et cetera. It formerly referred to the Special Commissioners. They are out of it now and in future it will be the Revenue Commissioners or the inspector of taxes.
Apparently there is not even a copy in the Library—they have to go to the stores to get a copy. What made me suspicious——
We have the famous Regulations now. Regulation 9 states:
Where the Special Commissioners, under subsection (1) of section 22 of the Finance Act, 1922, require any individual to furnish to them such particulars as are referred to in that subsection, and where under paragraph 8 of the First Schedule to the Finance Act, 1922, they require any member of a company to make an amended statement of his total income, they shall notify the individual or member of such requirement by notice in writing and such notice may be sent by post by letter addressed to such individual or member to his usual or last known place of abode.
As the Deputy will see, that refers to the Special Commissioners.
It refers to a member of a company who has got a direction under the old section 21.
To make an amended statement of his total income. It has nothing to do with a direction.
Is the Minister sure the direction is not in the earlier Regulations?
It refers to subsection (1) of section 22 of the Finance Act, 1922. Where the Special Commissioners required anyone to do anything under Regulation 9, from now on there will be a substitution for the Special Commissioners of the Revenue Commissioners or the Inspector of Taxes.
When the Minister looks back over the script, he will see he mentioned originally section 21 of the 1922 Act. It was when he mentioned it that I pricked up my ears. Maybe he did it inadvertently. So long as the Minister tells me categorically that this delegation does not mean that the man dealing with the day to day affairs of the company is now authorised to make a direction under what was section 21——
Regulation 8 is the one dealing with notice under section 21 of the Finance Act, 1922, and in that we have substituted specifically the Revenue Commissioners for the Special Commissioners.
Therefore it is a Revenue Commissioner only who can give such a direction?
Clearly.
If that is clearly on the record, I am satisfied.
Regulation 9 is concerned with giving notice.
It is implementing the direction given under Regulation 8.
It is part of the mechanics of it.
The mechanics for Regulation 8?
It is not exclusively for Regulation 8. It is to carry out notices under section 22 which is now section 527 of the Income Tax Act, 1967 and which is concerned with ordinary notices and requisitions.
So long as the Minister tells me categorically that the man dealing with the case cannot deal with cases under the old section 21, I am happy.
I am assuring the Deputy that a surtax direction——
I will not raise any further point on this amendment.
Amendment agreed to.
Section 3, as amended, agreed to.
SECTION 4.
Amendments Nos. 6 and 8 are consequential on amendment No. 5.
I move amendment No. 5:
In page 4, line 23, to delete "or neglect".
Candidly, I do not understand the purpose of the Minister in this section. I had thought it was agreed that the Minister had agreed he would prohibit going back beyond ten years except in cases of fraud. We all accept at once that if there is a case of fraud, there is no reason on earth why the Minister should not be able to go back, because why should a person who acted deliberately fraudulently get away and the rest of us have to pay his share? As I read the section now, it goes very much further than that. Subsection (2) (a) states:
Subject to any provision allowing a longer period in any class of case, an assessment or an additional first assessment may be made at any time not later than ten years after the end of the year to which the assessment relates:
Provided that in a case in which any form of fraud or neglect has been committed by or on behalf of any person in connection with or in relation to income tax, an assessment or an additional first assessment may be made at any time for any year for which, by reason of the fraud or neglect, income tax would otherwise be lost to the Exchequer.
There is a statutory obligation on everybody to make a return of his income. If a person by mistake leaves out an item from his income and that omission goes unnoticed during 20 years, the Revenue Commissioners are entitled to go back those 20 years. If a person has, for example, a genuine view that particular types of moneys are not income within the meaning of the Income Tax Act and therefore omits them, there is a judicial decision confirming that the opinion of that person and his adviser, be it an accountant or a solicitor or past solicitor or past inspector of taxes, is wrong. But the man left it out of his return bona fide——
But not by fraud or neglect.
That is neglect.
No. It was a mistake.
It is neglect.
A mistake in the law.
A mistaken impression of what the law is, which mistaken impression had been corrected only when there was a Supreme Court decision. It is neglect within the meaning of the section. I have been so advised by other people who have a far greater knowledge of it than me. Their view is that anything omitted from the statutory obligation of the taxpayer to include it in his return is neglect on his part of his obligation to include it.
That does not square with the definition obviously. The definition is that "neglect" means negligence or a failure to give any notice, to make any return, statement or declaration, or to produce or furnish any list, document or other information required by or under the Income Tax Acts. Is that not specific?
"Statement" means the information that is included in the return. "Statement" means the filling out of a particular line in respect of a particular item.
I do not agree. The proviso provides that "a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Revenue Commissioners or officer concerned may have allowed".
If you are not open to make good.
The proviso goes on: "And where a person had a reasonable excuse for not doing anything required to be done, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased."
If he failed to do it—that means you could go back 20 years.
There is a precise definition of "neglect".
As long as you have the word "statement" in, you cover every item that should be in the return. The manuscript writing that would be put into your printed return is a statement.
That is taking a narrow and rigid view.
Is it not what the Revenue Commissioners do—to take narrow and rigid views?
They have to uphold the law.
"Statement" means something like "I hereby declare that my income for the year is so much."
"I hereby declare as is included above" could if you have left one item out by mistake in that statement——
In that case you had a reasonable excuse.
A reasonable excuse only operates if you do it immediately after you are asked. That is not as if you had that reasonable excuse and then it is forgotten. The person who had no records would not know. I am all in favour of the saver for fraud. I am all against "in whole" in the proviso by virtue of which the person who makes a genuine mistake as in dropping a small item, which can happen to anybody, or a genuine mistake in interpretation of the law such as on the discovery of ten years——
I submit that this formal wording in the proviso covers a genuine mistake.
I submit that if the Minister looks at it, it does not. If the Minister is prepared to come with me in this respect and is prepared to say that it is held that this does not cover a genuine mistake, will he in his corporate capacity not come in with amended legislation and do that?
I will do that.
I am quite happy.
Amendment, by leave, withdrawn.
Amendment No. 6 not moved.
I move amendment No. 7:
In subsection (1), page 4, to insert the following paragraph after line 28:
"(b) (i) In a case in which emoluments to which this subparagraph applies are received in a year of assessment subsequent to that for which they are assessable, paragraph (a) shall have effect in the case of assessments or additional first assessments in respect of the emoluments subject to the substitution of a reference to the end of the year of assessment in which the emoluments were received for the reference to the end of the year to which the assessment relates.
(ii) The emoluments to which the foregoing subparagraph applies are emoluments as defined in section 110 (2), including any payments chargeable to tax by virtue of Chapter II of Part V and any sums which by virtue of Chapter III of Part V fall to be treated as perquisites of a person's office or employment, being emoluments, payments or sums other than those taken into account in an assessment to income tax for the year of assessment in which they are received; and for the purposes of this paragraph—
(I) any such payment shall, notwithstanding anything in section 114 (4), be treated as having been received at the time it was actually received, and
(II) any such sums which are not actually paid to that person shall be treated as having been received at the time when the relevant expenses were incurred or are treated for the purposes of the said Chapter III as having been incurred."
The necessity for this amendment arises out of the new ten-year provision. In the normal case, the ten-year limit for making assessments will run from the year for which the income is assessable. The general effect of this amendment is that if emoluments are received in a year later than the year for which they are assessable, the ten-year time limit will then run from the year in which the emoluments are actually received. The reason for that would be obvious. It would be possible for people to delay making the payments and so get outside the ten years.
That is plain enough.
Amendment agreed to.
Amendment No. 8 not moved.
I move amendment No. 9:
To delete subsection (2) and substitute the following subsection:
"(2) Where an assessment or an additional first assessment is proposed to be made by virtue of paragraph (a) or by virtue of paragraphs (a) and (b) of the subsection substituted by subsection (1), it shall not be made—
(a) in case it is proposed to be made by virtue of the said paragraph (a), if it is an assessment relating to a year prior to the year 1961-62, or
(b) in case it is proposed to be made by virtue of the said paragraphs (a) and (b), if the time of receipt (within the meaning of the said paragraph (b)) of the emoluments, payments or sums was prior to the year 1961-62, save in a case coming within the proviso to the said paragraph (a)."
I might say a general word here to explain a number of these amendments. Up to now, as I explained on Second Reading, the practice of the Revenue Commissioners has been not to go back more than six years, except in cases of fraud or neglect. I argued strongly on Second Stage and on last year's Finance Bill that that practice should be continued. As the House knows, some Deputies were not satisfied and they thought we should have a statutory provision and, being the reasonable man I am, I accepted their arguments and I am now providing a statutory limit of ten years. I have to bear in mind that the limit up to now has been six years. In bringing in a ten-year limit, we have to safeguard the six-year provision. In later amendments, the same thing will be applied in reverse. We apply to the Revenue Commissioners' extra assessments the same provisions as will apply in relation to taxpayers seeking repayments. It is a fair approach.
Amendment agreed to.
I move amendment No. 10:
In subsection (3), page 4, lines 52 to 56, to delete paragraph (a) and substitute the following paragraph:
"(a) by the substitution in subsection (1) of ‘any year of assessment for which an assessment or an additional first assessment could have been made upon him immediately before his death, or could be made upon him if he were living', for ‘the year of assessment in which such person dies or for any previous year'." .bqe
This also arises out of the ten-year period. When a person dies, the income tax assessment on the income liable to tax for the pre-death period—that is a terrible phrase — cannot be made until the grant of probate. If there were delay in taking out probate and if the ten-year period were to run back from the time of making the assessment, the period in which assessments could be made could be less than ten years. If the ten-year limitation period were to run from the time of taking out probate, delays of up to three years could result and the period prior to death for which additional assessments could be made would, in fact, be restricted to seven years. This amendment is to deal with that situation.
I am sure the Minister's explanation is correct but it has not got across to me.
I shall begin again; perhaps I did not put it very clearly. When a person dies, assessments cannot be raised until probate or administration has been taken out. As Deputies know, there may be a delay in taking out probate or administration. If we did not amend the Bill, the ten-year period would begin to run from the time the assessment was made and that might be two years after the date of death so that we could only go back eight years in that case.
I am obliged to the Minister.
Amendment agreed to.
Amendment No. 11, in the name of Deputy Sweetman, has been ruled out of order as it involves a potential charge on State funds.
I think the Minister has met me on that.
I have, in fact.
I think he has, but I shall say what I want to say on the section itself so as to be within the rules of order.
Question proposed: That section 4, as amended, stand part of the Bill.
I think the Minister has, in fact, by amendment 9 met, or substantially met, the point I raised in amendment No. 11, but I want to make an emphatic protest about the fact that this amendment was put down by me, to the best of my recollection, some six months ago and only after I have come into the House do I get notification today that it is out of order. That is, in my view, grossly discourteous to a Deputy—for an amendment to lie there for six months and the Deputy not to be told that it is out of order and particularly over the time before the amendments were to be discussed here. It meant, of course, that in those circumstances a Deputy would have to waste a great deal of time doing homework. It is not an appropriate procedure administratively.
This criticism, of course, is not levelled at the Minister.
No; everybody knows where it is levelled. The Minister has nothing to do with that. In fact, I imagine the Minister was told long ago that it was out of order.
Question put and agreed to.
SECTION 5.
Question proposed: "That section 5 stand part of the Bill."
If you did not give notice under this, would it not be neglect?
Yes, if you did not have reasonable excuse.
Now the Minister is going back to "reasonable excuse". That only operates in lines 40, 41, to 5, page 4, if you do it immediately after you are told——
I do not think so— if you did it without unreasonable delay after the excuse had ceased.
That could be 20 years after.
The sort of situation envisaged is where a taxpayer genuinely believes that such an item of income is not income and should not be included in his return. That is a reasonable excuse.
That is exactly the type of case I mean.
The only way that reasonable excuse can cease to be a reasonable excuse is by the taxpayer discovering to his certain knowledge that an item of income was income and should have been returned. Then we say, at that point of time——
A decision of the Supreme Court?
If the taxpayer was unaware of the decision of the Supreme Court, it would be all right.
No.
I think the excuse would continue until such time as the taxpayer was aware of the fact that this item was undeniably income and should have been returned. Right up to the point where he is seized of that information, his excuse persists, but if he becomes aware of the fact that it was income and should have been returned, his excuse ceases and he must do something about it. If he then does something about it at that point in time, he is still all right. There is no question of a penalty or anything of that sort. However, I have given the Deputy an assurance about a genuine mistake.
I do not agree with the Minister's interpretation but I have got his assurance in his corporate capacity.
Question put and agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
What is the purpose of section 6, please? The Minister is not going to publish a notice—that is section 167. I think I will agree with the Minister that it was a waste of money publishing the general notice but what I am not quite happy about is that he is apparently not going to give notice to individuals—section 168. I do not see why we are repealing that. Are you not going to send out forms to be returned any more?
The Deputy may take it we will. Section 168 of the Income Tax Act, 1967, says:
The inspectors shall, within the time directed by the precept of the Special Commissioners, give a particular notice to every person chargeable, within the limits wherein they act, requiring him, within such time as shall be limited by the precept, to prepare and deliver to the inspectors all such lists, declarations and statements as are required by this Act to be delivered.
That is the form of return we all get.
Yes.
If you are going to go on sending it why are you dropping it?
It is done by section 172 of the Income Tax Act, 1967. Section 168 refers to the Special Commissioners. They will not be there any more and so section 172 takes over and deals with the matter. Section 172 does much the same thing so far as the individual is concerned.
I was inclined to think that if they are both exactly the same, I should accept some of the blame—that they should have been consolidated into one.
No, I do not think so because one concerns the Special Commissioners and the other the Revenue Commissioners.
I am touched by the Minister's concern to defend me. That may be so, but that is not the answer for the deletion of section 179 which only refers to an inspector. These are all lumped together in a way that does not seem to me to involve the Appeals Commissioners provisions.
This is a tidying-up process.
I think the answer candidly—I am glad to be able to make a suggestion to the Minister— is that the repeal of section 179 is consequential on the repeal of section 167. I was hoping that the Minister would have explained that to me rather than that I should explain it to him.
Section 6 agreed?
I should not like to be discourteous and go too fast for the Minister. I should like to hear his reply.
That is correct.
Question put and agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill".
I am sorry for taking so long but it is a very voluminous Act to which one must keep referring back. Surely interest on borrowed money was there already, or is that another case in which the Consolidation Committee fell down on the job? I do not like having to suggest that we possibly could have fallen down on anything.
No, this is a new relief. It provides a new relief and I do not think it should have a very wide application. It is in relation to Chapter VI of Part IV of the 1967 Act, which is concerned with the taxation under Case IV of the Schedule D of income from rents out of lands and buildings which escape taxation under Schedule A.
Under the provisions of that Chapter which relate to rents under short leases, that is leases for a term not exceeding 50 years, the starting point of the Schedule D computation is the amount of rent to which the lessor becomes entitled in the year of assessment. From the gross rent receivable deductions are then made under various headings—annual value, rent payable, repairs, rates, services provided, insurance and management; and, for the purpose of determining the amount of the deduction to be made under any heading, the rules governing the computation of trading profits apply as if the letting were a trade carried on during the currency of the lease by the lessor for the time being.
Where, in the case of any lease, the computation brings out a loss, that is to say, where the aggregate of the deductions allowable exceed the rent receivable, the loss may be set off against any income, whether from rent or otherwise, on which the taxpayer is chargeable under Case IV of Schedule D for the same year; and any part of the loss in respect of which relief is not so given may be carried forward and set off against any income on which the taxpayer is chargeable under Case IV for any subsequent year.
In the case which has given rise to the present section there was very heavy expenditure on repairs to a number of let houses in the years 1963-64 and 1964-65. In consequence, the Schedule D computations in those cases brought out losses which have been relieved in the manner I have just indicated. To finance the repairs the taxpayer obtained a loan from a building society. Pursuant to an arrangement between the society and the Revenue Commissioners interest on loans made by it is paid without deduction of tax; and the amount paid in any year of assessment is allowable as a deduction from the total income of the borrower for that year. In the particular case in question, however, the amounts of interest paid in the years 1963-64 and 1964-65 respectively were in excess of the taxpayer's total income for those years; and, under existing law, no relief in respect of the excess can be given. The substance of the representations made in the case was that a provision should be introduced to enable the excess to be carried forward in the same way as a loss. In this connection, reference was made to the provision originally enacted as section 10 of the Finance Act, 1963, now section 316 of the Income Tax Act, 1967, which gives relief of the kind sought in respect of interest on money borrowed for the purposes of a trade or profession.
I am obliged to the Minister. It seems to me that the existing law was effective in everything except from the point of view of the carry forward position.
Yes.
If the Minister looks at page 1 of the explanatory memorandum, he will see, where it refers to section 7, that there is not a word about carry forward or carry over.
It says:
The amendments are concerned with interest which is paid by a person in receipt of rent out of let property on money borrowed for the purchase, improvement or repair of the property and which, in certain circumstances, cannot be relieved, or cannot be fully relieved, under existing law.
We would not have had to worry the Minister so much if reference had been made to "cannot be carried forward from year to year".
Perhaps it could have been more explicit.
That is a generous admission.
We will have it amended from this on.
I always understood it was allowed in the year but I did not spot the carry forward provision, partly because I was following the explanatory memorandum.
I have no doubt in the circumstances that it might have occurred to the Deputy's fertile mind that this was one way in which relief could be given by enabling the loss to be carried forward.
To be honest, I did not know it could be given already. It seemed it could be given in the other way. I could not follow what it was about. It is a good amendment.
Question put and agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
The Attorney General, the Consolidation Committee and the Chairman of the Consolidation Committee, all have to wear a white sheet. Is that not what it comes to?
No.
Yes: a minor drafting error but——
Perhaps a gremlin got into the printing works.
We should have spotted it and expelled it.
Question put and agreed to.
SECTION 9.
Amendment No. 12, in the name of Deputy Dillon, has been ruled out of order, and amendments Nos. 13 and 14 in the name of Deputy N. Lemass have also been ruled out of order.
Deputy Lemass only gave tongue to that because he knew he was going to be ruled out of order.
He has been plugging this for a long time. I think he is concerned with public morality.
No comment.
Amendments Nos. 12 to 14, inclusive, not moved.
Question proposed: "That section 9 stand part of the Bill."
As Deputies know, section 9 proposes to exempt certain United States pensions from Irish income tax. The reason is that these pensions are themselves exempt from income tax in their home country, the United States. It has been represented to us that there are other pensions from other parts of the world which are also exempt from income tax in their countries of origin and if that is so there is a case for exempting them also. I propose to bring in an amendment on Report Stage to do that.
Not only the United States?
Not only the United States. The idea is to encourage people with such pensions to come to live here on retirement.
I should like to be a little clearer about what the Minister said because I got some correspondence about one of these cases. If the pension would not be subject to income taxation in the country from which it is payable, then it would be exempt here?
That is what I am proposing under the amendment I shall move on Report Stage.
Irrespective of what it would be like if it were being paid to an Irish resident?
I follow the Minister.
The reason we did this in the case of the US pensions was that they were exempt from income tax in their country of origin. If we were to exempt from Irish income tax a pension which is taxed at source in a country with which we have a double taxation agreement, we would, in fact, only be making a present to the revenue of that country. This does not apply where a pension is paid free of income tax in its home country. We were struck by the two cases, the US Social Security pensions and the US railroad Retirement Act pensions, and it seemed to be very desirable that we should encourage people, in particular Irish people, who had these pensions to come back here to live and bring this income with them. It is now clear, I think, that there are other similar types of pensions originating in countries outside the US and it is only logical and sensible that we should do the same for those.
Did I hear the Minister mention railroad pensions in the US?
Yes; the two main ones which we were aware of were the US Social Security pension and the US railroad Retirement Act pension.
I shall be very glad to tell my correspondent that he will be covered on Report Stage.
He is in already. Railroad Retirement Act pensions are covered in section 9 as it stands.
Well, apparently the inspector of taxes to whom this solicitor was speaking on behalf of his client said he was not covered by this.
Perhaps he was being technical there. He is not covered at the moment but when this Bill is passed, it will be retrospective. Strictly speaking, he is taxable at the moment.
That may be the answer to it.
This will not merely apply to those countries with which we have a convention; it will apply to all countries?
Yes.
Question put and agreed to.
SECTION 10.
Amendment No. 15 not moved.
Question proposed: "That section 10 stand part of the Bill".
Amendment No. 15, in the name of Deputy Sweetman, has been ruled out of order.
May I suggest, Sir, that we have had in the beginning of this Bill the setting-up of an entirely new type of appeal to an Appeal Commissioner and when we have had the setting-up of that appeal by the Appeal Commissioner, surely it is proper to debate the type of hearing those Appeal Commissioners will deal with? I would agree at once if we had not set up the Appeal Commissioners to begin with but it does seem to me that having set them up, we should debate it. Perhaps I was incorrect in putting this in section 10 rather than as a subsection to section 1 but it seems to me that it is so cognate to section 1 that it is within the scope of the Bill and I submit accordingly.
The Chair gave this very careful consideration and came to the decision that it would open an entirely new debate on the Bill and that amendment No. 15 in the Deputy's name fails to satisfy the requirement that it be relevant to the subject matter of the Bill as read a Second Time. For that reason it was ruled out of order.
Perhaps I could help here. What Deputy Sweetman is seeking to do in this amendment is not necessary because it is already there.
I do not want to be more disorderly than I have to be In fact, a circuit judge in one circuit called in all the practitioners before him and told them that as he read the Act which I have endeavoured to amend he was not entitled to take into consideration accounts if those accounts had not been before the Special Commissioners Appeals Commission.
I do not think that is what the judge said.
That is what one man came hot foot boiling with rage to tell me he said. I do not want to name the judge.
We all know who he is. My understanding was that the judge was concerned with the more efficient running of his court, getting business done more quickly and so on and he said: "I am not going to, in future...." He did not say: "I have not got the power to ....". He certainly has the power. There is no question about that. He was laying down certain conditions about appeals and really I think he was concerned with accountants coming in and using the circuit court for the purpose of getting an adjournment. He was laying down stipulations on how he was going to deal with cases in future where people had been before the Special Commissioners and so on and where accounts were submitted and where they were not. I think he was trying to bring order into the proceedings and trying to make sure that the circuit court was not used for delaying purposes.
I can understand that.
I have often used it myself.
So have I.
I told you it was a common disease.
My understanding is that what he said was: "This is the way I am going to deal with these cases in future".
If he attempts to do it, he will be mandamused.
It is for another authority to deal with that.
Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill".
The Minister is not taking as much money. It would be better if he repealed the section of the 1965 Act dealing with these insurance policies.
Sin ceist eile.
I thought I would get that one.
Question put and agreed to.
SECTION 12.
I move amendment No. 16:
In page 7, line 30, to delete "transferable by delivery".
What I wanted to cover was the case in which a registered security is registered in the name of a holder outside the State. Let me give an example of what happens at present. A person is registered in respect of a security here and that person so registered is a trust corporation in New York, shall we say, and it issues sub-certificates transferable by delivery there or issues sub-certificates transferable by registration. There is some doubt at present as to whether in the case of the sub-certificates issued by registration by the person who is the registered holder of the bonds so far as the books here are concerned they might not be also liable for some duty in respect of sub-certificates issued abroad. The Minister has, in fact, no control over what is done and it would be desirable to acknowledge de jure as well as de facto that he has no control and that the stamp duty does not arise.
May I take a specific case? A company here raised a substantial sum of foreign capital by means of the issue of a series of bonds placed in New York. So far as the company here is concerned, those bonds are inscribed in the books of the company in Ireland in the name of—this is not the right name—the Anglo American Trustee Corporation Limited and they remain so registered for the lifetime of the bond because if they do not remain so registered for the lifetime of the bond, on every transfer of those bonds there would be one per cent duty payable. To obviate that, the Anglo-American Trustee Corporation Limited issued sub-bonds of the principal bond that they have. No duty can be collected by the Minister on these sub-bonds because they are issued in America. It is not a transfer within a State. The result of it is that the Minister gets no stamp duty but it is a very circuitous and cumbersome way of dealing with the matter and it would be much better if in these circumstances that registrable security was dealt with in exactly the same way as the bearer bonds will be dealt with if these were at any time changed into bearer bonds or had originally been issued as bearer bonds but there was a difficulty: they could not be issued as bearer bonds because of the pari passu nature of the bonds with certain other registrable securities.
I was not quite clear what the Deputy had in mind in putting down this amendment but it is a different thing entirely from what I am dealing with in the section. The situation in regard to bearer bonds is that a special duty is payable on them at the time of issue, but only at the time of issue. Because there is no subsequent duty leviable upon them as they pass from person to person, the duty at the time of issue is a heavier duty than it would normally be so as to compensate for the fact that we do not get any stamp duty at subsequent stages.
The situation in regard to bearer bonds issued outside the country is that at the moment they are supposed to attract this compensatory duty of £2 per cent but this leaves them at considerable disadvantage in relation to other bearer bonds issued abroad in the same countries by other companies or by corporations having their headquarters in other countries. It is to relieve them of that disadvantage that we are introducing this provision and they will not attract this special compensatory duty at the time of issue when they are issued for subscription abroad.
And the reason the Minister is doing that is that he wants to get the foreign capital in?
Yes.
In my case it is the same.
Irish bearer bonds issued abroad will not be at any disadvantage in relation to other bonds issued in the same place.
Irish registered bonds would not be at any disadvantage abroad. They are at present unless the subterfuge I have mentioned is used.
The Deputy's case is not concerned with bearer bonds?
No, no.
It is concerned——
With registrable bonds.
——bonds registered here, held abroad and subsequent transactions in relation to them abroad. The issue of the sub-bonds that Deputy Sweetman is talking about would not attract Irish stamp duty in any circumstances.
No. Therefore, the Minister gets no duty, but having to do it sub-certificate-wise makes it far more cumbersome and the Minister cannot get any duty. If he brought in the exemption, then it would be done directly here, which would be better.
In other words, the Deputy is proposing that a bond subscribed for abroad and registered here would not attract——
Transfer duty.
Of any sort?
If wholly subscribed abroad, if it has been raised in a foreign country.
Yes—we will consider that.
I will withdraw it and give the Minister the case I have in point. In the case I have in point it is too late, so to speak, now, to do any encouragement but it seems to me that there would be, we hope, future similar cases of getting capital in. I will give the Minister the details.
The Deputy is concerned only with the case of bonds subscribed for abroad, held abroad and transferred abroad?
Yes—transferred abroad but I want to have it transferred by a person resident abroad to a person resident abroad and I want the transfer registered here instead of having to register it through the sub-certificate I speak of.
Of course, I must explain, the Deputy's amendment is not relevant to that situation.
That is my draft. My drafting is not technical enough. We will discuss it again on Report Stage. I will withdraw this and put in something else to cover it.
Amendment, by leave, withdrawn.
Section 12 agreed to.
SECTION 13.
I move amendment No. 17:
In subsection (3), page 7, line 51, to delete "subsection" and substitute "section".
This is a drafting amendment.
Amendment agreed to.
Section 13, as amended, agreed to.
SECTION 14.
I move amendment No. 18:
To add to the section the following new subsection:
(2) The reference in Regulation 7 of the Corporation Profits Tax Regulation, 1967, to a commissioner for the special purposes of the Income Tax Acts shall be construed as a reference to an Appeal Commissioner appointed under section 156 (1) of the Income Tax Act, 1967.
This is still a continuation of the consequential results of the change in the status of the Special Commissioners to Appeal Commissioners. This particular amendment is to secure that Regulation 7 of the Corporation Profits Tax Regulations, 1967, which at present refers to the Special Commissioners, will refer instead to the Appeal Commissioners.
Amendment agreed to.
Section 14, as amended, agreed to.
NEW SECTION.
I move amendment No. 19:
Before section 15 (but in Part III) to insert a new section as follows:
15.—Where for any accounting period the profits of a company consist of or include the profits of a trade of dealing in or developing land in the course of which the company disposes of the full interest acquired by it in any land and, in relation to that disposal, the conditions specified in paragraphs (b) to (e) of section * (1) of this Act are satisfied, subsections (2) and (3) of the said section * shall, with any necessary modifications, apply to so much of the corporation profits tax charged by any assessment for the accounting period as would not have been chargeable if no sum had fallen to be taken into account as mentioned in subsection (1) (d) of the said section * as they apply to so much of the income tax charged by an assessment in respect of the profits or gains of the said trade as would not have been chargeable in that circumstance.
Perhaps, with amendment No. 19, we could also discuss amendment No. 25?
That would be a good idea. They both relate to the same thing but one has to do with corporation profits tax and the other is in relation to income tax.
They are both on the same principle.
I think that what we are trying to do here will commend itself to Deputies. It is to deal with the case of people who build property and sell it subject to a condition as to lease-back. We are trying to facilitate that sort of transaction. In brief, what we are proposing to do is to permit the payment by instalments over a ten-year period of the tax on a big profit which might be realised on that type of transaction but would not be available in cash to the person concerned. So far as this transaction would give rise to a taxable profit which would not be a liquid profit we are permitting the person to pay the tax over a ten-year period.
For example, the liquidisation of ground rents.
What is specifically involved is that very often a person sells a building for less than the full market value but with the proviso that he gets a lease-back. This lease forms part of the transaction, part of the sale price. The cash selling price would be taken into account and also the value of the lease-back. The particular portion of the profits on the transaction applicable to the value of the lease-back is not available to the person in cash and, therefore, he might not have ready money available to pay the tax on that part of the profit. We are allowing him to pay the tax on that part over a ten-year period.
I can understand the Minister perfectly. But that is not capitalisation. That is the reason I was looking at the Minister. I am not quite clear about the case of a builder who builds a premises and having built those premises, sells the premises for £10,000 subject to receiving a rent of £100 a year. The rent of £100 a year would be capitalised, as the Minister knows, shall we say, for £1,400, I use a person in the statutory sense as being a company or an individual. The person is assessed on the profit he made out of his building, that is to say, the £10,000 receipt, less his expenses, plus the £1,400 capitalisation on rent. I am assuming that he had it as a freehold before. Do I now understand that the portion of the profit covered by the £1,400 capitalisation can be paid over ten years?
No.
Then this affects only a very restricted type of case. It virtually affects only the type of case where a company own its premises, owns liquid cash, goes along to somebody and says: "We will sell you the premises." They could go along to the insurance company and say: "We will sell you the premises if you will give us a lease-back for 50 years." The number of cases of that type which arise every year, compared to the ordinary capitalisation case, is trivial.
Yes, but I will explain why we are doing it. First of all, in addition to the case the Deputy mentioned, that is, the case of the person who owns his premises and goes to an insurance company, we also have the company which builds its own premises and makes a building profit in the process. The reason we are doing this is that the sale and lease-back system seems to be a desirable development. Modern industrial management is more and more concerned not to lock up good working capital in bricks and mortar. It prefers to have the profit where it can use it for improving its business. A company may go to an insurance company so that it will be able to have liquid capital in order to expand its business. We would destroy the whole effect of that if we made them pay tax in hard cash on all of the profit. It would probably reduce very considerably any additional liquidity they might get from the transaction and that is why we are enabling them to pay this tax over a ten-year period. The builder who builds a premises and receives a ground rent on it is not in the same position. The builder is in the building business and his profits from building are taxed in the normal way. We are dealing here with a different type of person, institution, or company who are not in the building business but who are doing this sort of transaction as subsidiary to their main occupation.
A, B and C are drapers and pull down their shop and rebuild it. It costs £10,000 and they sell it to an insurance company for £15,000. They get a capital gain of £5,000 on that building. That is not a profit on their trading. That is not assessable tax. That is capital. If that transaction is attended by a contemporaneous agreement with an insurance company, they will give them a lease of 50 years at £1 per annum. That is not profit because it is not part of their business. If a draper engages in a capital transaction of that kind, where does he get his profit?
I am not really here concerned with whether this is profit or not. A separate criterion will be applied to that.
I fully appreciate the Minister's position but what puzzles me is that I understood that profit which accrued to you as a result of a capital transaction of any kind was not assessable to income tax and super tax. If you are not in the business of building, which was the whole argument we had on the Finance Bill——
That is what this whole Bill is all about. At present even though you are not in the business of building, under Part VII of the 1965 Act, you could be taxed in respect of a whole variety of transactions which were not related to the business you were in. We are trying to remedy this and we are trying to bring about a situation where such a person will not be charged on his profits.
If a man is in the business of building and uses up £100,000 capital in building and sells it to the Norwich Insurance Company, on the understanding that the Norwich Insurance Company will not only pay him the £100,000 he spent on the erection of the building but will also covenant to give him a lease for 99 years at £1,000 a year. He spent £100,000 and he got £100,000 cash from the insurance company. He has no profit on that. But he has also got a 99-year lease. The Revenue Commissioners value that at £20,000 which is the profit on this transaction, but, because it comes to him in the form of a lease, he shall have the right to pay it to the Revenue Commissioners in ten annual instalments of £2,000. That applies to all men whose business it is to build and sell buildings.
Suppose Switzers and Company, or Arnotts or any large firm, as often happens, build themselves a new building and spend £100,000 on the building. Having spent £100,000 on it, they sell it, say, to the Norwich Insurance Company for £120,000. They have now made a gross profit of £20,000 and, in addition to that, they secure a covenant to lease it back to them for 99 years. I am asking the Minister if I am not right in saying that, in as much as they are not in the building business, as defined by the Finance Act, 1965, they are not liable to tax either on the £20,000 or on the capital value of the covenanted lease?
That is right, and the present section does not apply at all.
This applies only to the person in the business of building, as defined by the earlier Finance Act?
Not exactly. We hope by this Bill to change the position under the 1965 Act and to provide that, unless one is in the business of building, developing, and so on, an isolated capital transaction of the nature Deputy Dillon is talking about will not be taxed. If such a transaction is not taxable under this Act, this section will have no relevance. It will come into operation only where such a transaction can be shown to be a trading transaction and income tax is chargeable on the profit of the transaction. In that case, then, this section comes into operation in the way I have described.
Is there any established basis on which the Revenue Commissioners value such a profit? Will the Revenue Commissioners arbitrarily value, for instance, the covenant lease for ten years as against the covenant lease for 50 years or 99 years?
What they do would be settled by the normal processes. They would take the full money value of the lease and in so far as the premises were let for less than that, the difference would be capitalised and that would be presumed to be the value of the lease-back.
And, from that decision, they may appeal to the Appeal Commissioners and from thence to the circuit court?
Yes.
It would then be only a token payment over ten years.
What would be spread over the ten years would be tax on the profits applicable to the lease-back, not to the cash transaction.
And the value attached to it would be subject to the same procedure in assessment as in the case of any other assessment, that is, appeal to the Appeal Commissioners and from thence to the circuit court.
Amendment agreed to.
SECTION 15.
The Minister has an amendment standing in his name, amendment No. 20. To that amendment, Deputy Sweetman has a further amendment.
The Minister moves his amendment first and then I come in immediately after that.
Immediately after the Minister moves it.
How is it that section 15 got into Part III and into Part IV of the Bill—pages 3 and 4 of my amendment paper. At the top of page 4, under Part III, amendment No. 19 is proposed to section 15. We have just passed that amendment. Then, further down, under Part IV, we see that amendment No. 20 is proposed to section 15.
I understand there is a new section.
We have now moved to Part IV. If the Chair will look at amendment No. 20, under Part IV, he will see that it applies, still, to section 15. Section 15 is in Part III and in Part IV of the Bill.
Would it not have been better, when it is Part III, to say, for example, "After section 14, to insert...."
Apparently that is the way it is always put.
Would it not be clearer the other way? Would it not be clearer to say "After section 14, to insert the following new section", for example?
I can never understand why it is done but that is the way in which it is done. Very often, the new section which is proposed to be inserted has no relevance at all to the section which it is stated to be put before—
Exactly.
——which are the grounds on which my amendment is ruled out of order.
If you were to put it after the section, it would give rise, I suppose, to a lot of other problems. I move amendment No. 20:
In subsection (1), page 8, to delete lines 33 to 37 and to substitute as follows:
"‘development' means, in relation to any land,—
(a) the construction, demolition, extension, alteration or reconstruction of any building on the land, or
(b) the carrying out of any engineering or other operation in, on, over or under the land to adapt it for materially altered use,
and ‘developing' and ‘developed' shall be construed correspondingly;".
It has been suggested that the definition of "development" in the Bill as it stands is ambiguous in that it is not altogether clear whether the words "to adapt it for materially altered use" apply both to the construction, demolition, extension, alteration or reconstruction of the buildings and to the carrying out of engineering and other operations or only to the latter. The intention is that the "materially altered use" qualification should apply only to the carrying out of any engineering or other operation and the definition, in the form in which it is presented in the amendment, I think, makes this clear.
I wish the Minister had had an opportunity of discussing the significance of the word "adapt" with his colleague, the Minister for Agriculture and Fisheries, when we were discussing the Marts Bill. He could have enlightened him greatly.
As an ex-Minister for Agriculture and Fisheries myself, I know how difficult enlightenment can be——
——for the Minister for Agriculture and Fisheries——
——in agricultural affairs.
That appears to be an agricultural disease. The Minister is getting them all.
He was involved in agricultural affairs.
That is what I am saying. I assume it confers immunity on him when he has passed through them all.
The Minister has moved amendment No. 20.
My amendment, which is an amendment to amendment No. 20, reads as follows:
To delete:—
"or
(b) the carrying out of any engineering or other operation in, on, over or under the land to adapt it for materially altered use,".
My amendment seeks to deal with the second sub-paragraph of the Minister's amendment. One of the things that worried me about this definition section when it came in its original form, and still very much worries me, is in relation for example to the erection of a fence. If a farmer sells a site and if that farmer erects a fence cutting off the site it seems to me, that under sub-paragraph (b) of the amendment introduced by the Minister, that, ipso facto, he is developing the site because that seems to be carrying out an “engineering or other operation.” Of course, I can understand the view taken where the person concerned builds and erects the fence. Consider the situation, however, where the vendor, for example, does not do any building at all, as such, where he is at arm's length, where he has no connection, either control or anything else, with the builder. Under this sub-paragraph, merely by the erection of the fence, I think that person will be caught. I do not think that is desirable. I do not even think it is desired. I will concede at once that there is the very greatest difficulty in defining “development” in a way that will let out the genuine case and bring in the case where it is merely some type of avoidance.
Does "materially altered use" not cover that?
If you fence off a site, it is no longer agricultural land. It is going to be a site for a house. It was a field on which cows grazed. The farmer concerned sold the site and, being anxious to ensure that his own cattle would not get out on the road during the erection of the house, made it a term of the outright sale that he would himself fence the site. Then I think he is caught under this. To be fair to the Minister, I do not think he intended to catch him.
The erection of a fence would not enable you thereby to erect a house.
It would mean that the land would be adapted for materially altered use. You could not possibly argue otherwise.
You could have cattle on each side of the fence. You do not necessarily need to put cattle on one side or the other.
The Deputy would be wiser to inquire from his namesake down in Ballymore Eustace if he is going to discuss cattle and fencing.
For God's sake, do not bring that in. Leave him out of it.
You will have a strike outside your office over this.
He is the man who lay down on the street.
Personal matters are being raised which are entirely irrelevant.
He tried to put the Department of Agriculture to a materially altered use.
To be serious, if a site is cut off and if it is fenced off, then it is being adapted for materially altered use and as such the vendor, if he did that, is guilty of development from the point of view of the taxable provisions of this. If the Minister can show me where that is not so I will be delighted to hear, but if it is so it means that the provision of sites anywhere in rural Ireland is going to be a thing of the past. None will be provided. God knows, it is hard enough for people who want to get married and build a house for themselves to get a site anywhere. If this means that they cannot get it that way without the owner concerned having to pay tax on the capital value of what he has sold, then the day of getting any sites throughout the country is absolutely gone. Many farmers when they sell do not like leaving it to the site purchaser to erect the fence. They want to be sure that they know where they stand with regard to fencing and so on. Even when a local authority buy it they have plenty of experience that the local authority method of fencing is entirely unsatisfactory, that the persons who go into the house will not keep the fence and, therefore, they make it as part of their original deal that they will do the fencing themselves.
Is there not one way by which this could be got around in practice? If you sold a lot withholding a foot and built the fence on that foot it would still be technically within the vendor's property?
You are still adapting the land that was there for materially altered use.
Even if the fence is built on the vendor's part?
I think so. I do not think the Minister wanted to provide that. May I at least get this from him? Am I correct in thinking he does not want to catch that case?
Certainly not, but it is not caught.
Will he explain why?
If the revenue authorities wanted to catch that there are so many hurdles they would have to get over that it is just impossible to contemplate them getting over them all.
They are good hurdlers.
The first thing they have to establish is that fencing off the land was an engineering or other operation to adapt the land for materially altered use.
There is no difficulty about that at all.
For what it is worth —I know I do not bind the Revenue Commissioners—I would say the Revenue Commissioners would never attempt to argue that.
The Revenue Commissioners must argue what is the law, and obviously that is the law.
I am saying that the Revenue Commissioners, in the words of Deputy Dillon, would be daft if they were to attempt to argue that simply fencing off a site was an engineering or other operation to adapt the land for materially altered use.
If it is not that perhaps the Minister would tell us what it is?
It is simply a fencing operation.
Does that not come within the terms applied by the Minister?
It is not engineering, is it?
It is not "engineering and other"—
"Other" is related to engineering.
——but it is "engineering or other operation".
As Deputy Booth pointed out, the mere fact of fencing land is entirely consistent with the normal use of the land. If a man has a field which he uses for grazing cattle it is a perfectly natural extension of the normal use to fence the field.
But not to fence off one rood?
He may have strip grazing. I am only saying that fencing as such cannot be regarded as something which is an engineering or other operation changing in itself the material use of the land. Is that not so?
I honestly think the Minister is mistaken and that Deputy Sweetman is right. I agree it is extremely difficult for the Minister to separate the obvious intention of this——
This whole question of development only arises if there is a business of developing land.
We will come to that, too.
It must be development and there must be a business of development.
Consider the case of a fellow on the verge of a town in rural Ireland who has a ten-acre field. He proceeds to fence that field off into 20 half acre lots. Does that come within this operation?
Certainly not.
I think it does, although I do not think it is meant to.
If I may do the Kerryman, how could the Deputy argue that simply erecting a fence was an engineering operation——
"or other operations".
——to materially alter the use of the land?
I see the Minister's difficulty there. I agree with Deputy Sweetman. I do not think the Minister wants to catch this operation, but as the Minister rightly reminds the House, what he says here does not bind the Revenue Commissioners. They are bound by what is written in the statute.
I read recently that a judge of the Supreme Court, I think, adverted to what was said here on the passing of a piece of legislation.
It was a most astonishing thing if he did.
Well, he did.
It must be since they determined to reverse themselves when they so disposed. I am not here, nor is the Minister, I am sure, going to criticise the procedure of the Supreme Court. As I understand the law, and my knowledge of it is restricted, the judge interprets our statutes not by what we mean very often but by what we say. I apprehend, Deputy Booth notwithstanding, that this form of words could catch and would catch a person who divided ten acres of agricultural land into 20 half-acres of building sites. I also apprehend that if the statute did that, we would be in the self-same position to which I have often referred in this House in which our ire, wrath, indignation and protestations are directed at the Revenue Commissioners because they have pursued some poor fellow down the country who only fenced his land, the position being that the Revenue Commissioners are all saying: "They must be daft when they put this section in the Finance Act, but it is there and once it is there we must implement it, and the way we implement it is to raise an assessment. We hope the Special Commissioners will turf us out." But if the Special Commissioners do not, the words of the statute apply." This poor unfortunate devil goes to the Circuit Court. Again the Revenue Commissioners will be praying to get turfed out, but they may not get turfed out because we have not taken the trouble to be precise.
I agree with the Minister in regard to his problem. The only immediate problem here is this one of fencing, and it gave rise to acrimonious argument in this House when we were discussing the Marts Bill. The same issue arose about converting land into the business of conducting a cattle mart, and the very same issue arose. If you fenced a piece of land for the purpose of confining cattle and subsequently sold the cattle, then that converted the place and made it liable to the restrictions of the Bill. The Minister for Agriculture argued powerfully that it did not. We argued powerfully that it did. I think the same proviso arises here, and perhaps the Minister would consider whether words might not be added providing that the erection of a fence for the division of a parcel of land sold for a materially altered use does not come within the scope of this subsection, or words to that effect.
It seems to me that this man who is fencing three or 20 sites, or whatever it is, is as safe as a house. First of all, he must do this in pursuance of the business of developing land. The very hypothesis put forward by Deputy Dillon and Deputy Sweetman rules out the fact that he is carrying on a business. You must have development as defined and you must have trade or business as defined. You must get these two things in conjunction before any possibility of an assessment arises. Development here is clearly defined as something of substance and something to alter materially the use of the land. I submit that a simple thing like fencing the land, ploughing the land, cutting hedges or anything like that could not, in any circumstances, be regarded as something which materially alters the use of the land. Even if it did, then it must have been done in pursuance of a business of developing land. You must have the two things.
Dealing in land is a business under section 16.
It must be clear and specific development of the land, and there must be a business side to it. The man who comes along and fences off 20 sites could not be caught in any circumstances.
Let me give the Minister a case I know has happened. This man was a farmer who has no business of any kind or description except that of a farmer. He sold to one particular person three sites next to each other. That man had at the far end of the same field some land where he had cleared away scrub years back and this land was not too good. With a bulldozer he took the top soil off the sites that he had sold and he put it away out to the back of the field to spread it as a means, if you like, of manuring the back of the field. That clearly was an engineering operation which materially adapted the site for another use. Having done that, he proceeded to sell his three sites to one person with whom he has no connection of any sort, a person completely at arm's length. Nobody can deny that that was an engineering operation. In my view, under section 16 he had a dealing in land, one dealing in land, as defined in section 16, and as defined in section 16 where a person has a dealing in land ipso facto he carries on the business of development.
I think he was looking for trouble, but, while he would certainly be brought under the provisions relating to the engineering operation for materially altering the use of the land, I submit he would not get over the second hurdle and come under "business".
That is an argument we shall have to have under section 16, because there are various views on it. I have copies of various submissions that have been made to me in respect of section 16, and there appears to be a big difference of opinion as to the meaning of the words. However, the case I have made—I have made it deliberately—is the extreme case of engineering——
I would not argue that case. I admit immediately that that man clearly adapted the sites for a materially altered use. He may have covered that up, but that is, in fact, what he did. He clearly carried out an engineering operation materially altering the use of the land.
I do not see why in that particular case that type of engineering operation should bring him within the scope of the Bill.
It should, because otherwise there would be a very big loophole. It seems to me that if we were to let that sort of case out, we might as well throw our hat at it, because a man could put sewerage into a building site and say he was draining the land for agricultural purposes.
I should like to see him get away with that under town planning.
If he levels the land and makes it suitable for building. I do not think we should let him out just because he happens to dump the subsoil on other land.
I will give the Minister all the paraphernalia he has about control but this should be the test: if the person does it for a capital sale for the purchaser whom he has at arm's length. If it is for a capital sale to a purchaser at arms' length, then he should not be caught under this section.
There is something we must add to that. If he has a piece of land and in a certain condition it is worth so much, and he does something to it which makes it worth more, that sort of operation should be considered as development for the purposes of this section. I want to say immediately that he must also be shown to be in the business of developing or dealing in land.
I have not been able to find any definition of "business" in any court decision in Ireland or England. The only one I could find was in New Zealand.
We cannot do any more with this development section.
Would it weaken it too much to say, "any engineering or similar operation"? Would that meet Deputy Sweetman's point?
I would accept that, or "like operation". I deliberately put the case of the bulldozer because that farmer got very good advice.
Could the Minister find words to provide a saver for fencing, words to exclude fencing? If a man wanted to fence a site effectively to prevent cattle straying from the road and did not want to leave it to the purchaser because he might not do it effectively——
"Engineering or other operation (other than fencing)".
If we were going to do that, I would be inclined to do it by way of proviso.
"Provided that fencing of land for agricultural purposes".
We think it is not necessary but we will look at it.
Is Deputy Sweetman's amendment withdrawn?
I shall withdraw it and see whether the Minister comes up with an amendment on Report Stage. If not, I will endeavour to do something myself.
Is the Minister's proposed amendment accepted?
On the understanding that he will look into the fencing question.
Provided that by accepting——
No verbal fencing please.
——the Minister's amendment, I am not precluding myself from amending that amendment on Report Stage. I was caught like that once and I do not want to be caught again.
Amendment put and agreed to.
Amendment to amendment No. 20 not moved.
I move amendment No. 21:
In subsection (1), page 9, to delete lines 1 to 4.
Amendments Nos. 22 and 23 are related.
These three amendments have been put down in consequence of representations which we received in relation to paragraph (a) of section 15 (2) of the Bill. The purpose of that paragraph is to secure that ordinary lettings will not be regarded as disposals of interests in land and that, consequently, Part IV will not apply to them. It has been questioned whether this purpose has been achieved. Section 15, subsection 2 (a) talks about a lease granted "wholly in consideration of rent" but it has been pointed out that, in virtually all cases, there are additional considerations by way of covenants, for instance covenants dealing with the repair or user of the property.
To pay rates is another one.
The second of these amendments, amendment No. 22, relates to subsection (2) (a) of section 15 and makes it clear that such covenants are to be disregarded and that a lease under which no premium is payable is not to rank as a disposal of an interest.
The third amendment, amendment No. 23, is consequential because it secures that in the application of section 18 to a case in which a lease is granted "price" is to be taken to mean the fine or premium required by the lease. These changes render unnecessary the final paragraph of section 15 (1) which provides for the interpretation of price or consideration in relation to a lease. Therefore that paragraph is proposed to be deleted by amendment No. 21. I think that should put the situation beyond any doubt.
Amendment agreed to.
I move amendment No. 22:
In subsection (2), page 9, line 9, to delete "wholly in consideration of rent" and to substitute "on terms which do not require the payment of any fine, premium or like sum".
Amendment agreed to.
Section 15, as amended, agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill".
A great deal of thought has been given to this section by those competent to consider it. On Second Reading and when he was discussing it a second ago, the Minister tied all his arguments to the question of what is the business of dealing in land. As I said a moment ago, there is no definition that I could find anywhere in Ireland, in England, or even in the books dealing with American law as to what is a business. The only decided case I could find anywhere was a case in New Zealand. Subsection (2) (a) reads:
A dealing in land shall be regarded as taking place where a person having an interest in any land disposes, as regards the whole or any part of the land, of that interest or of an interest which derives therefrom.
One single transaction is to be a dealing in land. Having looked at subsection (2), there we come back to subsection (1) where, apart from this section, all or some of the activities of a business of dealing in or developing land— now there is nothing to suggest that a business is to be a succession of acts. One single transaction, one single sale is a business of dealing in land under this section.
In one way I can see the necessity for the Minister so to provide because otherwise one could arrive at a succession of avoidance measures by promoting a company for the sole purpose of dealing in or developing land— I can understand that, To me it would seem more appropriate, however, to tackle the problem under section 15 rather than section 16. There are many instances of definition as to what is a trade and, if this section were based around the trade of dealing in land, then I think, with the cognate control subsections there are in section 15, one would be able to knock the anti-avoidance measures and, at the same time, ensure that the person who genuinely buys land or genuinely has land and sells that land will, in consequence, be treated as dealing with a capital transaction and not an income transaction which requires taxation. I know there have been suggestions put to the Minister in this respect by other people. The first time that there has been any reference to the word "business" in a statute, so far as is known to me, arises in the Excess Profits Act of 1915 where a trade or business is involved, but I think business there is intended to cover the profession as apart from the trade. It is not intended to cover the type of definition of business that is here.
A company formed to take over and manage freehold property, devised to beneficiaries, was held to be carrying on a business merely because it was carrying out the wishes of the testator. A company which received a fixed annuity and distributed it to shareholders was held to be carrying on a business. In fact, I am sure the Minister is probably aware that one of the better judges in England described "business" in relation to interpretations of this sort as being essentially the vaguest word in the English language. In subsection (2) we have the definition that I have mentioned of a dealing in land—that is to say, a capital transaction is to be treated as a dealing. There are a variety of analogies one could consider but, no matter where one turns under this section, one comes back to the same thing. We were met by the Minister, on Second Reading, by the statement that you must be carrying on a business; that is the same as saying you must be carrying on a trade; that is the same as saying you must be doing it again and again, that it is your business. There is nothing anywhere in any statute or court decision to suggest that argument could stand up for a minute. I am with the Minister in agreeing that there should be a provision that this section would cover a person who makes it his business to make profits out of dealing in land. That is a different story altogether from what is included in the section here.
Is that not covered in the second part of it where you have to acquire an interest and you can also dispose of it?
That is caught in the second part, but the first part is exclusive of that.
No.
If the Deputy looks at paragraph (a) of subsection (2)— where a person having an interest disposes of the whole or any part of the land or any interest in the land or of an interest which derives therefrom: I suspect that provision was put in for the purpose of catching the company formed for the single purpose of one single transaction. That I can understand, but I fail to see how the farmer who does a dealing under section 2 in the land, or who develops it, would not be caught under section 16. The Minister knows that he has received not Capal Street opinions in respect of this but opinions given by quite frankly, one of the people who is accepted as being a first-class conveyancing and tax lawyer.
The ultimate suggestion that was put to the Minister—I cannot for the life of me understand why the Minister did not accept it—was that subsection (1) should be amended to read: where apart from this section a business of dealing in or developing land is, in fact, carried on, all or some of the activities of such business would not, apart from this section, be regarded as activities carried on in the course of trade within Schedule D. It seems to me that if that amendment, put to the Minister by one of the bodies that went to see him, backed by the opinion of counsel, skilled in conveyancing, skilled in tax matters, and an acknowledged expert in this type of case, an acknowledged opinion in the technical sense of the phrase, had been accepted, there would be no argument. Why the Minister continues to set up his view against that opinion puzzles me.
Why does he not rather say: "All right; I do not agree with you but I will amend this in a way that will cut out the avoidance case"—that will block that loophole but, equally, let out the genuine case that we believe is caught by it and that we accept the Minister does not want to catch.
I suppose it is best to begin by saying it is a very difficult problem. We have been over most of the ground before. First of all, we must look at subsection (1) and also at its origin. The basis of it is that if a person buys the fee simple of land, builds a house on it and sells the fee simple, he is trading. He has bought something and he has sold it However, if he buys the fee simple in land, builds a house on it and gives a long lease, he has not disposed of his full interest in the land and he cannot be regarded as trading—buying something and selling it.
That is the situation we are facing; that is what is at the root of this whole legislative problem. We have tried in the subsection to say that if a person who is dealing in land is caught by the normal provisions of Schedule D, the section does not apply to be in at all. However, if he is not carrying on a trade under the normal provisions of Schedule D, but would be regarded as carrying on such a trade were it not for the fact that he did not dispose of his full interest in the land, then he shall be deemed to be carrying on a business of trading. That is the whole basis of it. We must look at the words in their normal, natural meaning. "Dealing" in ordinary usage does imply purchase and resale.
Is that not defined here?
Surely the Minister cannot say we must treat these words in their ordinary natural, meaning? In effect, there are highly technical meanings of almost each word in the income tax code. There is a vast body of case law.
"Dealing" is not, I suggest, one of those.
It is, in fact, defined in line 25: "a dealing in land shall be regarded as taking place...." Is that not a definition?
Yes, for the purposes of this section. I was about to deal with it.
I beg the Minister's pardon if I anticipated him.
The subsection states:
(a) a dealing in land shall be regarded as taking place where a person having an interest in any land disposes, as regards the whole or any part of the land, of that interest or of an interest which derives therefrom, and
(b) a person who secures the development of any land shall be regarded as developing that land.
They are two conditions which must exist in relation to subsection (1). Is that not right?
Yes.
That is right.
The section applies only if the person therein was carrying on the business and if the land had been acquired by him in the course of business. He must carry on business. The property must have been acquired by him in the course of business before the dealing in the land can be regarded as coming within the scope of the chargeable provision. It seems to me there is no other way in which I can achieve what I am trying to do here. I am trying to leave out the type of transaction which most Deputies agree should be left out—the isolated transaction by a person not carrying on a business—and trying to include as far as I can those who are engaged in the business of dealing in and developing land and who, simply because they do not dispose of their whole interest, cannot be caught under the normal rules of Schedule D.
Will the Minister please repeat what he said in regard to the people he wishes to catch?
I am trying to leave out people who we all agree should be left out, who dispose of a capital asset and make a capital profit purely and simply, or people who engage in an isolated transaction which is not related to the business of dealing in or developing land; and I am trying to catch the people who could be regarded as carrying on a trade under the normal rules of Schedule D, were it not for the fact that they did not dispose of their whole interest in the land. They are taken out of the ambit of Schedule D by the fact that they do not dispose of their full interest. I am trying to catch those people, who are carrying on a business but not caught under the normal rules of Schedule D. At the same time, I am leaving out people carrying on only isolated transactions. This is a considerable legislative straitjacket in which to be placed. I think the section achieves what we are trying to do; I am advised that it does and I do not think we can do any better.
The Minister referred to a single transaction. Supposing a farmer has land and his family before him had it in a couple of generations. Therefore, there is no question of resale. Supposing he sells it to three people, at arm's length with whom he has no contact. They are three capital transactions, or should be so treated, but the Minister said a few minutes ago that because the transactions were successive, they would be trading. Does the Minister not agree that so long as the transactions are completely at arm's length, they should be treated as three capital transactions?
Yes, and that is specifically the situation we are trying to deal with.
I accept that is what the Minister is trying to get at but I am not satisfied he has got at it.
How could the Deputy establish that such a man is carrying on a business? Is this man disposing of the fee simple or is he giving a lease?
He owns freehold and he sells freehold.
First of all, he did not buy the land in the course of a business of dealing in land.
He did not buy the land but under subsection (2) (a), the disposal of the land is the dealing.
He is not trading. He did not buy.
Under subsection (2) (a), he is. A single dealing in the land is regarded as having taken place in the sale alone.
If we look at subsection (1), we shall see that he must have acquired it in the course of business. He must be doing a business.
No. If he had to acquire it in the course of a business, but under subsection (1) it is the business of dealing which is defined as being the sale alone.
I do not agree. The subsection uses the words "in the course of the business". These are the words of subsection (1): "would be so regarded if every disposal of an interest in land included among those activities was a disposal of the full interest therein which the person carrying on the business had acquired and that interest had been acquired by him in the course of the business," ....
I am as clear as mud now.
Could we save time on this? We had, as the House will remember, a long discussion on the previous Finance Bill which created problems which we are now trying to solve. Both sides are agreed on what we want to do. Both sides have agreed we have done what we wanted to do. Would the Minister agree that if this worked out otherwise than what we all intend, he will introduce further legislation as his predecessor agreed on another occasion?
That sounds to me like asking the Minister to give a token undertaking.
I have seen that bog walked 20 times in my experience in this House.
We are walking in this path which the Minister laid down for us. It was laid down that if the original proposal worked out adversely or wrongly——
The then Minister would not listen to anybody, even Deputy Booth.
That man is Taoiseach to-day.
(Interruptions.)
You will oblige me to say something, no thanks to you.
Would it be fair to make that suggestion? Would it be helpful? We could argue imaginary cases here on which we will not get anywhere. In view of the fact that we do seem to be agreeing on what we want to do, can the Minister give an assurance that, if our clear intentions are not carried out by the Revenue Commissioners, through some technicalities or complications we cannot foresee, he will be prepared to deal with it.
I have no hesitation in doing that at all. This provision will be retrospective and will soon be tested. A number of cases, as it were, are already in existence which will immediately be subjected to the test of this piece of legislation. It seems to me we would be dealing with test cases immediately because of the retrospective effect of the provisions. I would really like to take Deputies back to the wording of subsection (1) of section 16 again. We can ignore for the moment the words "apart from this section, all or some of the activities of a business". We are dealing with cases which the normal income tax law does not bring within the scope of Schedule D. These cases do not come within Schedule D because the disposal was not a disposal of the full interest held in the land. If you buy and sell something and you still retain an interest in it, the transaction is outside the normal scope of Schedule D. We have here a case where "all or some of the activities of a business of dealing in or developing land would not be regarded as activities carried on in the course of a trade within Schedule D but would be so regarded if every disposal of an interest in land included among those activities was a disposal of the full interest".
We are dealing with a case where, because there was not a disposal of the full interest, the case is not within Schedule D, and we are saying that, if in that case the person carrying on the business had disposed of his full interest, liability would arise. Surely that makes it quite clear that the matter can only be "deemed to be wholly a trade within Schedule D" if the person carrying on the business would be regarded as carrying on a trade but for the fact that disposals made by him were not disposals of the full interest he held?
Is the Minister saying that it is subject in effect to a person who bought the land and for the purposes of Schedule D, and gave a lease of 99 years—that he is not parting with the ownership of the land? That slips out of Schedule D. We say we are providing in section 16 (2) of this Act—you are caught again.
The Deputy is getting at the root of it. If a man bought a fee simple and sold it he is taxable; if he buys something and does not dispose of his full interest, he is not taxable under the general law.
Subsection (2) applies.
Subsection (2) brings it within subsection (1).
Subsection (2) brings him within subsection (1). That brings in the case of the farmer on the outskirts of any town in rural Ireland who sells not one building lot but ten building lots—ten different lots along different sides of the road.
May I explain further? Let us look closely at the wording of subsection (1)—"but would be so regarded if every disposal of an interest in land included among those activities was a disposal of the full interest therein which the person carrying on the business had acquired and that interest had been acquired by him in the course of the business,". Does that not make it clear?
The Minister feels that these words "had been acquired by him in the course of the business" cut out a man who had been an elderly farmer and was now entering into the market for land for the first time.
He does not realise he has assets.
If he did not buy the land and sell the land and seek to avoid giving a perpetual lease, you are not concerned with the section at all?
He is buying the land and selling the land as part of the same business.
He may not sell his full interest in the land.
If a man buys one piece of land, a man who has no normal connection with building or development, and promptly within a period of a couple of years re-sells that piece of land at a profit, is he not caught?
I would not think so; in fact I would state categorically that he is not. I can only again direct the attention of the House to the words. Subsection (1) is very tightly worded. If you study it carefully, you can see that there must have been a disposal of the full interest the person acquired.
Will the Minister please tell the House when a person is going to be caught then for tax? Would he explain the reverse of the situation? When is a person going to be caught for tax through buying and selling land?
First of all, there is the clear case of a man who does it every day of the week. If he is buying and selling land every day of the week and buying and selling the fee simple, there is no doubt about his position.
Or buying and selling an interest. Suppose you get an engineer?
What does that mean?
Supposing he were an engineer—engineers are connected with land. If he bought one property and resold the same interest as he bought, and if he is an engineer?
The first type of person caught is a man who can clearly, within the normal rules of Schedule D, be shown to be carrying on the trade——
That is simple.
Yes. The next type of man we are after and who will be caught, is the fellow who is carrying on a business but would not be caught under the normal rules of Schedule D on either of two grounds, first, that he does not dispose of the full interest he acquired in the land or secondly, that he says he did not acquire it with the intention of turning it over at a profit, that is, that he did not acquire it in the course of a business.
I thought the "intention" had gone.
No, the intention is still there under the normal rules of Schedule D. The argument he would use to get out of the normal rules there is that he had no intention——
That is section 6 of the Finance Act of 1935.
——that he had no intention of selling; that he bought it to keep it.
I described to this House how a person got out of that situation. He bought the land today and then brough his wife along the next day, showed her the site and said: "We could build a nice house here for ourselves." She says: "No, you will not, unless you want to be divorced." Then he says that he has to develop it and he is not caught. We all know who that was. It is very well known to the House.
I am only mentioning that he might also escape liability under the rules of Schedule D and I have been talking about one loophole, that is to say if he did not dispose of the full interest. He might also bring himself outside the ambit of the rules by saying that he did not acquire this property with the intention of selling it or developing it; that he just acquired it for his own use. The fact that he did not have the intention would remove one of the ingredients of trade out of the situation. He might get out of the situation in either of these two ways: that he did not dispose of the full interest or did not have the intention of selling when he bought. This is the sort of person we are trying to catch. If he is trying to get out of the position where he can be shown to be trading, by either of these two devices only, then we catch him, but if he is outside the ordinary rules of Schedule D for any other reason—the other reason being simply that it is an isolated capital transaction—we do not catch him.
The whole of this business began by our apprehending that there were people going around, paying £20,000 for a piece of land to sell to somebody——
I think it was the famous case, where the land was sold for £120,000.
The feeling of the House was that this was a profit that should be accessible to the Revenue Commissioners and should not be regarded as the case of a person who had grown elderly and had an old house in disrepair and an unmanageable garden of some 30 acres, selling the property and going to live in a flat. That would be regarded as an isolated capital transaction whereas the fellow who bought the property for £20,000 and sold it perhaps for £120,000 to a developer, would be expected to pay tax on the £120,000.
It all began in the Supreme Court. In 1936, the situation obtained under which people who did what Deputy Dillon was talking about were taxed on the profits, and that was that. Then the Supreme Court upset that situation by incorporating the idea of intention. The Supreme Court said that the intention is one of the ingredients of trading and in order to be carrying on a trade, you must have acquired land with the intention of developing it.
This is section 6 of the Act of 1935.
That threw the cat among the pigeons. How was anyone to establish intention? How were the Revenue Commissioners to establish intention on the part of a builder? He could say that he had bought it for his wife to walk around in it. So the Revenue Commissioners came along in 1965 in an effort to deal with the situation and get back into the net the man whose business was buying land, developing it and selling houses.
Then it went a little farther than we intended and now we are trying to draw back again.
Yes.
I think the main cause of the second step in the intention case was that what happened then was that the man bought land for development for, shall we say £20,000 and having done so, he went through the antics to which I have referred, to disprove intention, and then proceeded to sell the land for £120,000 to his own company, with the result that his own company made a loss on building development instead of making a profit with which he should be taxed. I think there was a succession of people, in my view dishonestly, saying that they had not bought with intention and then selling for a faked price to a company to ensure that they got their profit capitalwise instead of making a normal profit on their business. I think that started the Revenue Commissioners going into it in 1965. We told the Minister's predecessor then that we would give him every assistance to block the type of case to which I have referred but that the way in which the Minister's predecessor went into it would catch the entirely innocent case also and would result in fact in there being fewer sites for development. That was the experience and the fact. Mark you, I admit quite honestly that the Minister has gone a long way towards persuading me that his interpretation of section 16 is better than mine. We shall have a little time between now and the next day to discuss that and certainly, if not to agree that his definition is right, at least to see whether there is some other way in which we can provide that the man who is doing the genuine capital transaction is not caught, without letting out the man who is doing what is an income transaction but which is being done under the guise of a capital transaction.
May we have section 16 before you go?
No.
When are you resuming discussion of the Bill?
Next Tuesday. That, I might say, is due to the courtesy of the Minister in not taking it tomorrow because I have to be somewhere else tomorrow.
Progress reported; Committee to sit again.
The Dáil adjourned at 10.30 p.m. until 3 p.m. on Wednesday, 14th February, 1968.