I do not propose to detain the House much longer but there are a number of specific items which may be of assistance to Deputies in relation to Committee Stage that I would just like to clear out of the way.
Private Members' Business. - Capital Gains Tax Bill, 1974: Second Stage (resumed).
Question again proposed: "That the Bill be now read a Second Time."
Order. Will Deputies please leave the Chamber as quietly as possible?
I was asked about the sale of copyright. The proceeds of the sale of copyright by any writer, composer, artist or sculptor who created the work is an income receipt which qualifies for exemption under the Income Tax Act. Because it is an income receipt there would be no charge to capital gains tax because it could not be both at the same time.
Whether by lump sum payment or otherwise?
Yes. But if it is sold by some third party that is a different kettle of fish, if I may use that term in relation to a work of art.
Deputy Colley asked whether the value of an asset which had become negligible could be brought to appeal if it was not accepted as such. The answer is "yes", all questions of assessment can be brought to appeal.
Earlier Deputy Colley asked me if I was finished with the land surrounding a house and I have since recalled that it was he who raised the question of other statutes referring to a house being that which lies on five acres of land and wondered why was the difference between five acres and one acre. The reason is very clear. It is the same reason that other people, including Deputy Belton, spoke about. Any land attached to a house could be of immense value depending on its location. Obviously the greater the demand on the land the greater will be its value. A private dwellinghouse with one acre in an urban area could have a market value far in excess of its worth as a single private dwellinghouse. This is a considerable exemption and it would be wrong to add to that exemption the further addition that would accrue to the person who had five acres surrounding such a house. As with other measures in this Bill we had to go for a reasonable compromise to let out the normal private dweller. We have done this but to extend it further than the one acre would allow a bolthole for escape to avoidance and other practices that could not be condoned.
What about rural areas?
In the rural areas I mentioned earlier what will happen is that the house and one acre will be exempt. Any excess will be taxable as long as it is within the brackets of liability. If all the property is sold together, the house and the value of one acre will be taken out and the remaining acres will be liable if they fall within the appropriate figure.
Will the Minister comment on the suggestion I made, that if he could not see his way to allowing the five acres he might consider applying the house and the five acre limitation to existing holdings and provide for the house and one acre for further acquisitions?
No, I do not think it would be justified for the reasons I have given. It would allow extremely generous concessions to people fortunate enough to have this extra land.
No liability arises prior to 1974.
No, but why should one confer this piece of luck on one section of the community who happen to be in property that has immense market value? This would be wrong because it would be giving a concession that would not be warranted. It would be a special favour to people who least need it.
Company group treatment is a matter that falls for treatment not within the ambit of capital gains tax but rather on the Bill relating to corporation tax. I shall insert the necessary provisions in that Bill so that capital gains accruing to members of a group of companies will be dealt with within the Bill dealing with corporation tax.
The Minister will appreciate that while that is a reasonable approach it is important when this legislation is being passed that some indication be given regarding how the matter will be treated in the other Bill. Will it be broadly similar to the treatment in Britain?
The provisions for group reliefs have been set out in the White Paper on corporation tax. I think they are somewhat similar to what exists in Britain but I should not like to be specific on that. I am not too familiar with the position in Britain and I should like to study it before I give an answer I might be held to on that. We have set out the provisions in the White Paper. Pending the introduction of corporation tax legislation, any company that consider they are adversely affected by existing rules may apply to the Revenue Commissioners who have power to grant relief administratively where hardship occurs.
Deputy Colley asked me to provide that there be a carry back of losses. As the Deputy knows, this is not permitted under the income tax system and, as the great argument in favour of capital gains tax is that it is a tax on receipts that are analogous to income, I do not think it would be right to provide this special exemption in respect of capital gains unless it could be provided in respect of income tax. It could not be provided with regard to income tax without generating immense, costly and complex situations for taxpayers and the Revenue Commissioners. The right in respect of losses will be similar to the one that applies to income tax, namely, the right to carry forward capital losses against future capital gains.
Deputies Collins and Fitzpatrick asked for information about the way the Revenue Commissioners will require taxpayers to account. On the annual income tax form there will be a space in which taxpayers will be required to fill in details of assets acquired during the year, their cost and any capital gains made in that year. Deputy Fitzpatrick asked specifically what accounts would be required to establish what money had been invested in a business. The ordinary income tax returns will show what money is invested in a business because by making such returns the taxpayer can receive credit for investments made.
(Dublin Central): That is not true. This may not be shown. It is only the profits that are made from the business that are shown.
The ordinary accounts would disclose what change there was in an investment in a given year.
(Dublin Central): That is not necessary the case. If a person has other funds that he invests in the business, how will account be taken of them?
If the accounts are properly drawn up they should show what money is invested in the business. If they do not disclose that they are not properly drawn up.
(Dublin Central): That is not so.
I am sure the Deputy is not suggesting we should depart from proper accountancy practices.
(Dublin Central): If I have £10,000 in shares and sell them and invest the money in my business, how will that be accounted for in my income tax returns?
It would be new capital introduced into the business.
(Dublin Central): How would it be shown in the income tax returns?
It should appear in the accounts of the business. Deputy Colley asked me if ships and aircraft would be regarded as plant and machinery for roll-over relief? As I am sure he assumed, the answer is "yes".
I wanted to get it on the record.
Deputy Colley raised a number of questions of a technical nature with regard to unit trusts. He advanced that perhaps some unit trusts would not enjoy some of the alleviations proposed. I will look at this matter and, if necessary, I will introduce an amendment on Committee Stage.
I hope this covers most of the points raised. I am grateful to the House for the way the Bill was considered on Second Stage. Many of the questions more directly related to Committee Stage but I hope that as they have been posed on Second Stage and, I trust, answered satisfactorily it will mean that the Committee Stage will be all the more expeditious.
I am afraid only some of the answers were satisfactory.
The Minister will have his hands full on Committee Stage.
I hope they have assisted clarification.
They have done that.
They have whetted our appetite for more information.
Deputies may be assured that I will be only too willing to give that information. I started my speech by pointing out the contradictions in the Fianna Fáil stance and I will conclude by pointing out another example of this. At one stage I was taunted that the words I used suggested there could be an increase in the rate of tax. Coming from the party opposite this amused me because instead of the 26 per cent rate for the first six years they urged we should have a higher rate of tax on capital gains. It emphasises what I said at the beginning, that apparently they are confused in their approach to capital gains and they are trying to milk two different cows at the same time into opposite buckets, but they have not got four hands.
Nowadays cows do not give that much milk.
Perhaps not at this time of year. Let the Deputy not draw me into that or we might reopen the debate which took place earlier. If Fianna Fáil would decide before the next Stage on which side they are it would help them and the country generally to identify what their approach is to this issue of capital gains, which I see very simply as being a necessary step towards the achievement in this country of what every progressive country has already, that is, a much broader base for taxation with less avoidance and evasion than we inherited in the taxation code which we took over and are now as quickly as possible trying to reform.
(Dublin Central): When we come to the Committee Stage would the Minister indicate the indicators he will have to assess inflation or does he expect the Bill to go through the House half-finished?
No. I pointed out to the Deputy that this is a Bill which introduces capital taxation in Ireland, that the rate chosen and the concessions given take account of the possibility of inflation and provide a very generous measure of relief to the overwhelming mass of taxpayers. I am satisfied that these thresholds, adjusted from time to time, are the most appropriate way to tackle this problem of inflation. There is almost unanimous agreement among financial commentators that it is not possible to produce a satisfactory index or regulator to govern inflation in respect of capital taxation. That is one of the reasons we have gone to these ready and not so rough thresholds and one rate so that account can be taken of possible movements in inflation without causing hardship to anybody. This is not the last word and further reliefs and amendments can be given as is given in respect of income tax.
(Dublin Central): We do not know what rule of thumb the Minister will use.
You can judge people by their actions and I have shown since this Government took office willingness to alleviate the tax burden and we will continue along that line.
Will the Minister, between now and the Committee Stage, consider the point I put to him: that what he should be looking at in this Bill is the amount of real gain, which is what he is trying to tax, as distinct from the increasing value of one asset as against another? If the Minister would consider that I believe he would find it possible then to introduce a form of indicator that would adjust for the value of money. I am not asking him to comment on it now. I am asking him to think about it.
The Deputy heard Deputy Myles Staunton say that the Minister is a good listener. I am that. I listen and I consider. I will certainly consider everything that was said in the course of the Second Stage debate.
(Dublin Central): Would the Minister consider the reinvestment issue? Would he consider the case of people who are advised by their doctors to give up a particular kind of business which does not suit their health and who have to invest in another business?
Anything which can be done to meet situations of genuine human difficulty will be done, but I cannot in fairness to the general body of taxpayers—and I am sure Deputy Fitzpatrick would not wish me to do so—introduce any amendments which would leave the door wide open to avoidance and evasion. The ordinary taxpayers might not have to carry the burden they have if we had not got so many opportunities for avoidance and evasion by those who have means far greater than the average citizen. We must not allow that situation to continue. In introducing new taxes we must not provide any avenues for escape, in fairness to those who have the capacity to pay.
(Dublin Central): I agree with that. In a few years' time the Minister might not be in office but the Revenue Commissioners will be there and people will be dealing with them. They will go on the Bill as it stands.
Before I leave office I intend to make my mark to ensure that nothing I do causes any injustice.
Question put and agreed to.
Next Stage?
Wednesday of next week. I think it was agreed between the Whips.
Wednesday of next week was agreed between the Whips and on that basis we are prepared to go ahead with it. Would it be possible to put it back a little further, having regard to the complexity of the Bill and the necessity for various amendments? We would appreciate further time. I want to make it clear we are prepared to go ahead on Wednesday of next week if that is necessary.
If the House would agree to Wednesday of next week I will see what the situation is like in the meantime. As the Deputy appreciates, there are other capital gains taxation Bills on the way and it would help if we got one of them out of the way.
Committee Stage ordered for Wednesday, 5th February, 1975.