It might help if I read something I have here in relation to section 16.
Finance (Miscellaneous Provisions) Bill, 1967: Committee Stage (Resumed).
Question again proposed: "That section 16 stand part of the Bill."
I would be very glad to hear it. The Minister asked us to give him section 16 last Tuesday. I deliberately suggested not because I wanted to re-read what had been said. Having read it again in company with others much more skilled than myself, I can say none of us was able to understand the section.
This may help. I apologise to the House for reading it, but I think this puts it fairly clearly. Section 16, subsection (1) of the Bill speaks of the activities of "a business" of dealing in or developing land. It has been suggested that the use of the word "business" makes the incidence of the legislation unduly wide. I want to emphasise at once that in the subsection the word "business" does not stand on its own. It occurs only as a part of the phrase "business of dealing in or developing land". Accordingly a business of, for example farming land or of holding land as an investment is excluded. What the subsection contemplates is something which in the ordinary use of language would be described as a trade but does not fall to be regarded as a trade under the Income Tax Acts as they now stand. We sought to find a more suitable word than "business" but we have not been able to find one. It does not at all follow that anything which might be called a business of dealing in or developing land is caught by the subsection. In order to understand this point the legislative background must be taken into account.
A builder will normally take a plot of land, build houses on it and dispose of them to purchasers by way of lease or sub-lease. The Courts have held in effect that, in such cases, the builder is not carrying on a trade and that he is simply acting as a landlord. He is so regarded as being a landlord because he has not got rid of the whole of his interest in the land.
That is the Swaine case.
Apart from this decision of the courts, everybody would recognise him as engaged in the trade of building. There is another aspect because of which a tax assessment on him could fail. He could defeat the assessment by pleading that he did not acquire his interest in the land in the course of his business. He might say that originally he bought the land for his own occupation or as an investment. As Deputies know, section 6 of the Finance Act, 1935, was enacted to meet these arguments, but it has not proved successful in doing so.
In section 16, subsection (1) of the Bill, whether "business" or some other word is used is not really important. The reason is that a business of dealing in or developing land does not, under the subsection, attract tax under Case I of Schedule D unless it is a particular type of such business. It must be a business which is not regarded as the carrying on of a trade within Schedule D. Furthermore, it must be a business which would be regarded as a trade within Schedule D if every disposal of an interest in land made by the person concerned was a disposal of his full interest and that interest had been acquired by him in the course of the business. The matter may be expressed otherwise by saying that the business must be one which in the ordinary way would have fallen to be treated as a trade taxable under Case I of Schedule D but in respect of which it was not possible to sustain the charge, solely because either of the two arguments I referred to could have been advanced against it. The two arguments, again, are that he did not dispose of his full interest or did not acquire it in the course of the business. It is only where the business would have fallen short of being a trade in this manner that section 16 (1) applies and makes it a trade. I do not know if that helps.
When is a trade not a trade?
We begin with something that comes within the ordinary definition of a trade for the purposes of Schedule D. We leave it out and we go on to the type of case which we are dealing with in section 16 where, if a man had disposed of his full interest in the land, it would come within Schedule D.
There is no problem about that.
There is also the case where he could argue that he did not acquire it with that intention. We say that if the thing is done as a business of developing or dealing in land it becomes a trade for the purposes of Schedule D.
I am obliged to the Minister for reading the note which he received. I think the Minister will agree with me when I say that the phraseology of this part of the Bill is perhaps the most difficult to analyse that we have had to deal with for some time. I accept the difficulty that arose earlier for which section 6 of the 1935 Act was enacted. It was enacted after the Delaney case I think. The difficulty that arose in respect of that Act subsequently was the impossibility of proving the intention. Those things I can understand, but it seems to me that the whole phraseology of sections 16 and 17 is such as to create confusion rather than to catch the type of case.
Frankly, I do not think there is much difference between the Minister and myself about being caught. What worries me is that there will be other cases which it is not the intention to bring within the ambit, but which will be taken within the ambit. It seems to me that we are running into a danger here by bringing in the word "business" which we need not run into at all. I did some chasing after a definition the other day but I failed to find it. I know I have come across some judgment in which a judge said that "business" is when a man is busying himself. You can busy yourself about anything. If that definition is to be imported into this, even with the addition which the Minister has just indicated, as part of the construction of the sentence, I think we are going to have unnecessary trouble. We must remember that in the ordinary way "business" is not imported into the Income Tax Acts. If anyone were to say to an accountant or a solicitor that he was carrying on a trade as an accountant or solicitor, the professional man might be a little offended. I think we are importing this whole conception quite unnecessarily.
I want, if I may, to put this two other ways which seem to my simple mind to be much simpler ways and I would be grateful if the Minister would indicate whether he thinks his section achieves the same result. It seems to me that section 16 could be covered exactly by a very simple one-sentence definition.
The Deputy is too long in the tooth to believe that. It is the simple one-sentence definitions that get us into all the trouble.
I want to say: "where a trade shall still be a trade even though the trader is not disposing of his full interest". As I understand the Minister's remark of a few minutes ago, that is the whole purpose of section 16.
We go a lot further. The Deputy would open the door very wide that way.
I want to come back to that again later. Now, I am deliberately putting this in the most non-legalistic language I can: if a person is carrying on activities so as to constitute a trade that trade shall not cease to be a trade because of the circumstances in which he acquired the premises.
The Deputy is getting at the two points.
I am getting at the two points. It seems to me that phraseology, tidied up a little, would get at what is required without getting into the definition of business, of which, quite frankly, I am frightened.
Would the Deputy read the second part again?
If a person is carrying on activities which constitute a trade that shall not cease to be a trade because of the circumstances in which he bought or acquired the land.
Thinking very quickly, it seems to me in that form of words the Deputy will include the isolated transaction.
No, because he will not be carrying on the activities.
The second part deals only with a person who is carrying on activities.
If he is carrying on a trade it can be held, as I understand it, that, because he said he bought to build a house for his wife, he would be outside the trade. I accept the Minister must block that loophole.
Am I right in thinking that the Deputy's first suggestion is that it will not be a trade simply because he disposes of less than his full interest?
That could cover the freehold and the leasehold.
That would bring in the isolated transaction.
No, because the isolated one would not constitute a trade. Let me put an analogy to the Minister: I understand that, if an issue of new stock comes on the stock exchange, and the Minister and I each buy in a bit of stock and then dispose of it, that is an isolated transaction. On the other hand, if we make a regular practice of doing this, we will undoubtedly be assessed as people who are dealing in stocks and shares. It seems to me that same thing would arise here. I am not the least bit happy about what will happen to the definition of a business. If a business is defined as a person being busy then this will catch the first transaction and it seems to me we will have two unnecessarily complicated sections because we bring in business whereas what we should do is deal with the word "trade" as it is known in the income tax code.
Do not forget that the man we are talking about—the builder—is not carrying on a trade at all, by definition. The income tax law has said he is not trading. There is no trade in it.
No. The Minister is now dealing with section 18 which is a different section altogether.
The Deputy's original amendment says that, if it is a trade, it shall not cease to be a trade simply because he did not dispose of the full interest. As we stand at the moment, it is not a trade at all so that proposition does not really get off the ground. What the Deputy is saying is, if it is a trade, it shall not cease to be a trade.
Why is it a trade? The Minister is mixing up two entirely different things. If, and this is most unlikely, a person goes out and buys a piece of land and resells that piece of land, at the time he bought it—there is a case in relation to this incidentally —he was not a builder and had nothing to do with the trade and, at the time he sells, he sells completely at arm's length to someone who is not an accepted company under section 18, then that is a single transaction and, as I understand the Minister, that transaction will not be caught because he is not carrying on a trade. If a builder buys land and the single buying of that land is not a trade but, if he then sells or leases that land to a company with which he is concerned as a builder, then he will be caught, not under this but under section 18 and I accept that he should be so caught.
The Minister argues that I am trying to eliminate section 18 but I accept at once the provisions of section 18 because they must be there to ensure that a builder pays tax on his building profits and does not transfer those profits by means of associated persons or, as a layman would say, associated companies, for the purpose of taking the profit out of his building into his company transactions. I have no doubt whatever that the Minister is right in section 18 because, if that section were not there, there would be an easy loophole for evasion, and that is something none of us would be prepared to stand over. What the Minister wants to catch is a trade. What the Minister wants to ensure is that something that is a trade is not called by some other name and, therefore falls outside the ambit of the Bill. What worries me is that in doing that he brings in the word "business" and I am afraid he is thereby opening, quite unwittingly, let me say frankly, a floodgate of trouble both for himself and for all concerned.
I do not want to get too bogged down on this. Deputy Sweetman's first leg seemed to be that, if a man is carrying on a trade, he shall not cease to be regarded as carrying on that trade simply because he did not dispose of his full interest. As the law stands at the moment, that man is not considered to be trading at all and, therefore, Deputy Sweetman's first leg cannot come into operation.
This is not considered to be trading at all.
As the law stands at the moment, the courts have held that a man is not a trader on the grounds that he has not disposed of his full interest and he is really only a landlord.
He has not disposed of the full interest, I agree. That is why I exclude that.
It seems to me Deputy Sweetman's definition falls down because the man is not trading at all. Deputy Sweetman assumes he has a trade and says that if he is trading, he should not be considered not to be trading simply because——
I do not agree, but I say——
My reply is that that does not start to operate because the man is not carrying on a trade and therefore the question of his ceasing to carry on does not arise.
I do not agree, but I say, accepting the Minister's argument for the purposes of argument, it would be far preferable to define that a man buying land and building houses on it is a trader. The Minister is saying he is carrying on a business, which is entirely different. It would be much better the other way—to keep to the trade. What worries me is that the Minister is creating a new concept in the tax Acts of a business of dealing instead of dealing with all or some of the activities of a trade of dealing in land. I should be much less perturbed by it. I admit freely I did not put as clearly as that the last day what I had in my mind—I was assisted in expanding my notes by what the Minister said at the beginning. I cannot put it any more clearly. Between now and next Tuesday, both the Minister and I had better look at the debate, analyse it and see if we can discover further holes in each other's arguments or in our own arguments even.
Question put and agreed to.
SECTION 17.
Question proposed: "That section 17 stand part of the Bill".
In relation to sections 17, 18, 19, 20 and 21, these are almost exact replicas of similar sections in the existing Act. I am really doing this for neatness. Instead of changing parts of the Act, I am abolishing the whole part and re-enacting these.
I noticed that. I made it clear to the Minister that section 18 is necessary, unfortunately.
Question put and agreed to.
SECTION 18.
I move amendment No. 23 :
In page 13, to add to the section the following subsection:
"(3) In the application of this section to a case in which a lease is granted, any reference to price shall be construed as a reference to the fine, premium or like sum payable for the grant of the lease."
This was taken with amendments Nos. 21 and 22.
Amendment agreed to.
Section 18, as amended, agreed to.
SECTION 19.
I move amendment No. 24 :
In subsection (13), page 15, to delete lines 34 to 39 and to substitute as follows:
"(c) there shall be disregarded any building provided for use, and brought into use, for the purposes of a bona fide trade carried on by the company, other than a trade of—
(i) dealing in or developing land, or
(ii) the provision of services for occupiers of land an interest in which is held by the company."
Could the Minister give us a slight explanation of what he has in mind here?
The avoidance device against which section 19 is directed may be briefly described as follows:
A company formed to erect a building would, if it sold the building in the ordinary way, be taxable on the profit realised. If, however, the person wishing to acquire the building obtains effective control over it by buying the company's shares the proprietors of the company would obtain their profit in non-taxable form.
The purpose of section 19 is to defeat this form of avoidance by securing that the consideration received by a former shareholder will be taxed to the extent of what would have been his share of the taxable profits which would have arisen to the company if the building had been sold.
The intention of paragraph (c) of subsection (13) to which the present amendment relates is to secure that no question of liability can arise where the building is provided and brought into use for the purpose of a bona fide trade carried on by the company— unless the trade of dealing in or developing land or of providing services for occupiers of land in which the company has an interest. It has been represented to me that this intention would be more clearly expressed if the paragraph were presented in the form proposed by the amendment.
In other words, this is a drafting amendment?
This is a drafting amendment.
This is a case in which, shall we say, Carrolls build new offices for themselves. I mention them because I drive past each morning.
Amendment agreed to.
Section 19, as amended, agreed to.
Section 20 agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill".
This is the last of the old ones which have been taken out in bulk.
This is the last of the carry-forward ones.
Question put and agreed to.
NEW SECTION.
I move amendment No. 25:
Before section 22 to insert a new section as follows:
"22—(1) Where—
(a) a person (hereafter in this section referred to as the vendor) carrying on a trade of dealing in or developing land (hereafter in this section referred to as the trade) disposes, in the course of the trade, of the full interest acquired by him in any land,
(b) the person to whom the disposition is made (hereafter in this section referred to as the purchaser) is not a person connected with the vendor,
(c) the terms subject to which the disposition is made provide for the grant of a lease of the land by the purchaser to the vendor,
(d) a sum representing the value of the vendor's right to be granted a lease falls to be taken into account as a consideration for the disposal in computing the profits or gains of the trade, and
(e) within six months after the time of the disposition, a lease of the land in accordance with the said terms is granted by the purchaser to the vendor.
the following provisions of this section shall have effect in relation to tax for a year of assessment in the basis period for which the disposition is made.
(2) If, at the time when any amount of income tax charged by an assessment in respect of the profits or gains of the trade would, but for this subsection, become due and payable (otherwise than by virtue of section 418 or 419 of the Income Tax Act, 1967),—
(a) the vendor retains the leasehold interest acquired by him from the purchaser, and
(b) has not disposed, as regards the whole or any part of the land, of an interest derived from that leasehold interest.
a part of the said amount of income tax equal to nine-tenths of so much thereof as would not have been chargeable if no sum had fallen to be taken into account as mentioned in subsection (1) (d) shall be payable in nine equal instalments at yearly intervals the first of which is payable on the 1st day of January in the year following that in which, but for this subsection, the said amount of income tax would have been payable.
(3) Where, in a case in which the postponement of payment of any amount of income tax has been authorised by subsection (2),—
(a) the vendor ceases to retain the leasehold interest acquired by him from the purchaser,
(b) the vendor disposes, as regards the whole or any part of the land, of an interest derived from the said leasehold interest,
(c) the vendor, being an individual, dies, or (d) the vendor, being a company, commences to be wound up,
that said amount of income tax, or, as the case may be, so much of it as has not already become due and payable, shall become due and payable forthwith.
(4) In relation to any assessment to sur-tax made on the vendor, subsections (2) and (3) shall apply to so much of the tax charged thereby as would not have been chargeable if no sum had fallen to be taken into account as mentioned in subsection (1) (d) as they apply to so much of the income tax charged by an assessment in respect of the profits or gains of the trade as would not have been chargeable in that circumstance.
(5) In this section ‘basis period' means, in relation to any year of assessment, the period on the profits or gains of which income tax for that year is finally computed under Case 1 of Schedule D in respect of the trade or, where, by virtue of any provision of the Income Tax Acts, the profits or gains of any other period are taken to be the profits or gains of the said period, that other period."
This has been discussed with section 19. It has to do with building for lease back.
We discussed it already.
Amendment agreed to.
SECTION 22.
I move amendment No. 26:
In subsection (1), page 18, line 7, to delete "therein" and to substitute "in this Part".
This has been discussed already. It is a drafting amendment.
Amendment agreed to.
Section 22, as amended, agreed to.
SECTION 23.
Amendment No. 27, in the name of Deputy Byrne, has been ruled out of order as being outside the scope of the Bill.
Deputy Byrne can put it down again on this year's Finance Bill.
We hope it will not be necessary—that the Minister himself will include it. We now know that it is part of his favourite amusement to take our suggestions, on by one.
Amendment No. 27 not moved.
Section 23 agreed to.
Sections 24 and 25 agreed to.
SECTION 26.
Amendments Nos. 28 and 29 may be discussed together.
I move amendment No. 28:
In page 19, to delete subsection (3).
These two are again drafting amendments to rectify a technical difficulty in the original Bill as drafted.
They do not make any change, their purpose being for clarification?
They are to remedy a technical difficulty.
Amendment agreed to.
I move amendment No. 29:
In page 20, to add to the section the following subsection:
"(10) An award under this section and an award under the Superannuation Acts, 1834 to 1963, shall not be made to or in relation to the same person."
Amendment agreed to.
Section 26, as amended, agreed to.
SECTION 27.
Amendment No. 30, in the name of Deputy Dillon, has been ruled out of order as being outside the scope of the Bill.
Amendment No. 30 not moved.
Section 27 agreed to.
SCHEDULE.
I move amendment No. 31:
In Part V, after "Finance Act, 1965", to delete "Section 65 (1), (2), (3) and (6)" and substitute "Section 65 (1), (2) and (6)".
—An tAire Airgeadais.
The purpose of this amendment is to delete the reference in Part V of the Schedule to subsection (3) of section 65 of the Finance Act, 1965. The provisions intended to be included in Part V are those provisions in force for the purposes of Corporation Profits Tax in which references to the Special Commissioners occur. Section 65 (3) of the Finance Act, 1965, is purely an income tax provision and ought not therefore to have been included in Part V of the Schedule.
May I inquire, having regard to the very great number of amendments this Bill makes to the Act of 1967, is there to be any possibility of getting the loose-leaf Income Tax Act which would incorporate these or get a new printing of the Act?
I expect the Deputy to stand up and cheer when I tell him that the loose-leaf volume will be available next week.
Hurrah.
I hope the Deputy will stand me a glass of brandy on that.
I hope the Minister will compliment the Committee on Consolidation who worked so hard. That is an excellent thing. If the Minister could add that the death duty volume would also be available next week, then I would make it a double brandy.
The Deputy will have to pay tax on this brandy.
Might I make this suggestion to the Minister? In these amendments—and it is nearly always the Minister for Finance who would arise here—to a very technical and complicated Bill like a Finance Bill of this sort, would it be possible, when the Minister is circulating amendments, to circulate a similar sort of explanatory memorandum as he circulates with the original Bill, because very often there is a lot of trouble involved which could be obviated straightaway by somebody saying: "This is only a drafting amendment."
Something might be done, I think.
Amendment agreed to.
Schedule, as amended, agreed to.
Title agreed to.
Bill reported with amendments.
Report Stage ordered for Tuesday, 27th February, 1968.