Dáil Éireann debate -
Thursday, 13 Feb 1975

Vol. 278 No. 3

Capital Gains Tax Bill, 1974: Committee Stage (Resumed).

Question again proposed: "That section 4, as amended, stand part of the Bill."

Mr. Colley

We have demonstrated in relation to this section, that there are very serious implications involved in regard to the industrial development of this country, in particular with regard to the operations of the Industrial Development Authority. A number of industrialists have been attracted here by the IDA over the years. What is not, perhaps, generally known is that a high proportion of industrialists from abroad have re-invested in this country the profits which they made and which were free of tax. The effect of this section is that, in such cases, if those industrialists dispose of any portion of that re-investment of their profits, and make a gain, even nominally—with inflation running as it is, as I pointed out they will, in almost every case, show some form of gain—they will be subjected to capital gains tax. The consequence of this is—I do not think the Minister has tried to contest this proposition—that an industrialist in such a category, faced with the choice of being subjected to capital gains tax in such circumstances, or having the option of taking his profits out immediately, thereby not being subjected to capital gains tax, will almost inevitably opt for taking his profits out of the country immediately. This can hardly be regarded as a satisfactory approach to our economic problems, particularly at the present time with the level of unemployment at over 101,000.

We can distinguish in this matter between projects which have already come in and projects which may come in in the future. In regard to projects which may come in in the future, it is an arguable case as to whether a proposal such as this—which would demonstrably have the effect of inducing foreign industrialists who invest in this country to take their profits out of the country immediately, rather than re-invest them here, contrary to what has happened up to now—is in the interests of our economy. But with regard to projects which have already come in on foot of the undertakings given by the IDA, with the authority of successive Governments, there cannot be any room for argument at all. It is quite clear that what is being done in this section is a breach, almost certainly of the letter, of parts of the undertakings and certainly of the spirit of the undertakings given. I have indicated before that I have personal experience of the concern of these industrialists and potential industrialists to ensure that when they do make profits on their operations here no restriction will be applied in any way by the Government. Heretofore, it has been possible to give them every assurance on that issue.

To say the very least, it is unfortunate that we should have to contemplate once again a situation in which this Government is in breach of undertakings given. I am referring to what happened in regard to existing mining operations. It is a different situation if one is talking about future operations or about future industrial development here. In dealing with cases of those already here, on foot of the undertakings given, it is almost incredible that the Minister should contemplate doing what he is doing in this section.

Last night we heard from the Minister a statement to the effect—since I do not have a record of what he actually said I am paraphrasing what he said, I hope fairly—that there was no murmur from foreign industrialists or from potential investors in this country to the IDA or to the Government, following the publication of the Government's White Paper on Capital Taxation. When I asked the Minister if he was putting on the record of this House a statement to the effect that there had been no "murmur"—to quote himself—to the IDA or to the Government, he back-pedalled and said there had not been any to his Department, or to him, and there was no record in his Department of such.

Then I asked the Minister if he had consulted the IDA with regard to the effect of this section. The Minister refused to disclose whether or not he had. The reason he gave for refusing was that if he did disclose that he had consulted the IDA, we on this side of the House, would say that he did so because the section was going to damage our economic prospects. That is about as futile an argument as I have heard for a long time. The Minister should be concerned with the practical effect of what he is proposing in this section. As I pointed out to him on a previous occasion, potential industrial investors in this country could not care less about Fianna Fáil, Fine Gael or the Labour Party. That is not their concern at all. What they are concerned with is the practical effect of what is done by this House, and the other House, and how that works on the ground. For that reason, it seems to me to be selfevident that the Minister should have consulted the IDA and the Minister for Industry and Commerce as to the likely effect of this section. If he did, and, as a result, could assure the House that there were no ill effects whatever expected from it, that would certainly be an advance.

If he did not consult them, then it would be fair to describe his failure to do so as gross negligence in the context of the importance from the point of view of providing employment and of ensuring the full effectiveness of the IDA operation. It has not been possible, as I have outlined, to establish whether or not the Minister did consult with the IDA. If he did, I personally would be extremely surprised if they were in a position to tell him that there would be no ill effects from this section and that there have been no complaints or no apprehension expressed by investors or potential investors as a result of the Government's White Paper on Capital Taxation.

This is a serious matter. We have raised various points on this section and on the amendments to it but none could be compared in importance with the point I have been dealing with. The Minister has been less than forthcoming in his response to it. It augurs very ill for the general approach to the economy by the Minister and by the Government when one sees this kind of apparently unthinking and even reckless approach as far as the consequences of what is being done in tax legislation are concerned. It is deplorable that we should be faced with this situation. But the fact is that we are. On this side of the House, there is not anything we can do except to highlight what is happening. There will come a time, I hope, when the economy will be in the hands of people who at least have some degree of prudence in trying to ensure that the ultimate result of whatever is done is to improve the economy and to create more jobs for our people. That is not apparent from the approach of the Government.

Mr. B. Desmond

I have rarely listened to such a piece of specious and mischievous——

Mr. Colley

The Deputy is welcome to the debate.

An Ceann Comhairle

Order, please.

Mr. B. Desmond

I heard the debate last night. The Deputy is repeating it this morning, of course, for the benefit of the headlines.

Mr. T.J. Fitzpatrick

(Dublin Central): Perhaps Deputy Desmond would tell us how he can take 102,000 people off the dole and get them jobs.

An Ceann Comhairle

The Deputy must be allowed to make his contribution without interruption.

Mr. Crinion

He is only coming in to talk——

An Ceann Comhairle

Deputy Crinion, the Chair has made an appeal. Up to now it has been a very orderly debate. Let it remain so.

Mr. B. Desmond

Because the Fianna Fáil Ard-Fheis is on tomorrow night, it is a little early to start huffing and puffing. There will be plenty of time over the week-end to indulge in that negative exercise.

Mr. Power

We will not be stabbing any of our own at our Ard-Fheis.

An Ceann Comhairle

Deputy Power must desist.

Mr. B. Desmond

I mentioned that I had rarely heard such a specious piece of self-righteousness and very mischievous huffing and puffing as we heard from Deputy Colley. He alleged that potential foreign investors in this country have expressed the gravest of concern about capital gains tax and this particular section and that it is acting as of now as a massive disincentive to foreign investment here. I challenge Deputy Colley to name those people in this House and to give some factual evidence for the allegation he made.

Mr. Colley

On a point of order, is Deputy Desmond purporting to quote me? May I take it that he is not but is giving his version of what I said? Is that the position?

Mr. B. Desmond

I am giving a précis of what Deputy Colley said.

Mr. Colley

As long as we have it on the record that Deputy Desmond is not purporting to quote me but is giving his version of what I said.

Mr. B. Desmond

It is very difficult to summarise the rather tendentious and lengthy analysis of Deputy Colley. My summary of it is that he is alleging that capital gains tax here is acting as a major disincentive to foreign investment. I assume that is a correct summary of Deputy Colley's allegation. I challenge him now across the House to name potential foreign investors he may have met, or who have been in communication with him, who are expressing such grave concern. I can assure the Deputy that I have met such investors both American and British—and they are mostly million pound class investors—and they have assured me that they regard the capital gains tax provisions here as reasonably moderate. Fianna Fáil are now in the unique position of being the only so-called western European social democratic party—not even their Gaullist friends would support them in this view—which are opposed seemingly now in principle to the very concept of a capital gains tax. So negative have been their amendments to this Bill—and so regressive would they be, if applied, we would wipe out collectively the very concept of a capital gains tax.

Mr. T.J. Fitzpatrick

(Dublin Central): We are not opposing capital gains tax.

Mr. B. Desmond

I think I rather provoked Deputy Colley this morning. It is about time he stopped following the economic policies of Mrs. Margaret Thatcher.

Mr. Colley

It is about time the Deputy got stuck into this debate.

An Ceann Comhairle

Deputy Desmond without interruption.

Mr. B. Desmond

I have been proud to leave this debate to the most radical Minister for Finance this State has known, Deputy Ryan. He is the epitome——

(Interruptions.)

An Ceann Comhairle

If Deputies do not desist from interrupting, I will have to ask them to leave.

Mr. B. Desmond

I would suggest to Deputy Colley that the Minister's perception and understanding, and I would suggest radical and responsible approach to the matter, is one which contrasts starkly with the confused portfolio held by him over the past three or four years, a period during which we did not know whether or not we had economic policies, a period during which apparently the Cabinet could not make up their minds one way or the other. Finally, coming up to election time, he dived in off the deep end when they decided on a series of economic policies in their last 20 days in office before losing the last general election. I regard it as a national effort by Fianna Fáil to undermine the confidence of potential and existing industrial investors in this country to indulge in the kind of allegations that have been made here regarding the effect of the capital gains tax. We know perfectly well that there is not a financial journal in Europe, or a financial investors' chronicle in Britain, or a columnist in The Financial Times of London who is not acutely aware of the simple fact that in the Republic of Ireland this capital gains tax does not bite as deeply as that of Britain and many other countries in Europe. To suggest that he should draw an analogy between the mining undertakings given by his Government and this tax is simply fatuous. Deputy Colley knows perfectly well that were it not for a change of Government, the mining and mineral rights of the people would have continued to be sold down the river as they were by him and his colleagues when in Government.

(Interruptions.)

Mr. B. Desmond

He knows perfectly well that the change brought in by the Minister and the Government in relation to mining taxation was one that was well and truly in the national interest. I am appalled that a major political party in Opposition should have indulged——

(Interruptions.)

An Ceann Comhairle

Deputy Crinion must desist from interrupting.

Mr. B. Desmond

Deputy Crinion has enough to say in this House and, God knows, he takes long enough to say it. May I make my contribution and would the Deputy please stay quiet while I am doing so?

Mr. T.J. Fitzpatrick

(Dublin Central): He is trying to put the Deputy right.

An Ceann Comhairle

Deputies will be afforded a full opportunity of contributing to this discussion. In the meantime they must refrain from interrupting.

Mr. B. Desmond

I want to make the point to the Fianna Fáil Party that to draw an analogy between mining taxation in this country and capital gains taxation is one which a third-rate economic student in the National University of Ireland would not dare to draw. Deputy Colley knows that well. With regard to the alleged breach of undertaking given by the Government I suggest to Deputy Colley that he examine his own conscience and that of the Fianna Fáil Party in relation to this. It was I who, in this House four or five years ago, forced Deputy Colley's Government, to put in the Library of this House the record of Marathon Oil. That was the agreement entered into by Deputy Colley's Government with Marathon Oil, an agreement which yesterday afternoon at a committee meeting in this House, the Deputy's erstwhile colleague, Deputy Haughey, said he disapproved of and voted against in the Cabinet.

He said he completely opposed it in Government. I challenge the Deputy for having the gall and nerve to come into this House and suggest that this Government are reneging on undertakings given. In relation to mining, to Marathan Oil, and to a whole series of other events, quite frankly, the sellout by Fianna Fáil was scandalous and certainly something in which we will not indulge.

Deputy Cunningham suggested that we had not consulted with the IDA. I would assure Deputy Cunningham——

Mr. Colley

I have asked——

Mr. B. Desmond

——God knows, as a Deputy with economic difficulties in his own constituency I have been in touch with the IDA rescue service. I know many senior executives and members of the board of the IDA. I consulted with members of the board and I got the impression from the consultations I had that perhaps there was some concern in relation to the treatment of productive assets. With due respect, it was not necessary for "Backbencher" to write in The Irish Times that B. Desmond or somebody else did not particularly express an interest in the Capital Gains Tax Bill. We are perfectly pleased that the Minister, Deputy Ryan, should handle the matter. The Labour Party are proud he is doing so in an effective and competent manner.

Mr. Colley

Not just at the moment.

Mr. B. Desmond

May I assure Deputy Colley that, to the best of my knowledge, which admittedly does not extend to that of the Minister, the IDA are reasonably assured this Bill will have no major counter-productive effect on the prospects of investment here. I am shocked that Deputy Colley should use the kind of phrase that foreign industrialists and business people wanted—to use the Deputy's own phrase—no restrictions whatsoever in relation to their profits.

Mr. Colley

That is not what I said.

Mr. B. Desmond

Deputy Colley used the words that these people wanted no restrictions whatsoever.

Mr. Colley

On the use to which they could put their profits.

Mr. B. Desmond

There is a nice piece of ideology there, no restrictions whatsoever on the use to which they could put their profits. With due respect to Deputy Colley, there is a Council of Ministers meeting in Dublin this morning, many of them with experience in the financial portfolios of their countries. Were they to make that kind of comment in a serious parliamentary debate in their countries they would be laughed out of their respective parliaments, and Deputy Colley knows that to be the case.

Mr. Colley

Is Deputy Desmond familiar with what the IDA——

Mr. B. Desmond

Very familiar. I am on their mailing list.

Mr. Colley

Complete freedom from Government control over investment of profits. Is that anything that would be laughed at in the capitals of Europe?

An Ceann Comhairle

Order please.

Mr. R. Ryan

I have no control and there will be no control.

(Interruptions.)

An Ceann Comhairle

Deputy Desmond without interruption.

Mr. B. Desmond

Deputy Colley suggested that this country should revert into the hands of those who had managed the economy with prudence. I have a premonition that if this country adopts the economic policies of Deputy Haughey via Deputy Colley—because I gather when Deputy Haughey finishes infusing his economic policies which I regard as ultra-right-wing Powell-ist policies; Margaret Thatcher is more progressive than Deputy Haughey— by the time we would be finished, with that exercise it would not be prudence this country would need. Indeed, it is a rapid change of mind from any future confidence the country might have in the Fianna Fáil Party's capacity to govern.

Therefore, I suggest to Deputy Haughey and to Deputy Colley that rather than indulge in the kind of mischievous non sequiturs relating to industrial development here and its future prospects they should devote themselves to this Bill, act in a constructive manner, and they will find a similar response from our side.

The reason for my harsh reaction to Deputy Colley this morning is a very simple one. I listened to him last evening at great length trying desperately to undermine what I would call industrial confidence in this country, trying desperately to say to existing enterprises: "Look, if it were not for the Coalition, we would treat you more generously. We would, of course, act more effectively. We would be more generous in dealing with your taxation problems." The simple fact of the matter is that the Government, notwithstanding the current economic difficulties, have not shied away from the need for changes in the capital taxation laws of this country. These will be implemented. They are no more rigorous than any which any American, Canadian, British or European investor would face in his country.

I am convinced that this country, irrespective of its economic difficulties, is not going to be held up, as it was held up by Fianna Fáil, a hostage to foreign fortune here. We will act in a responsible manner; we will press forward with this type of legislation. The synthetic concern expressed by the Deputy on many occasions last evening and this morning is merely, as far as I can see, a public relations exercise by him for the Fianna Fáil Ard-Fheis. It certainly is not one which will convince the vast majority of sane and sensible Irish people.

I challenge Deputy Colley to ask the delegates attending his Ard-Fheis if they are in favour of a system of capital taxation and capital gains taxation in this country. I am quite certain that the vast majority of them would vote in favour of capital taxation, particularly in relation to capital gains. I would remind Deputy Colley despite a right-wing effort a couple of years ago at his party's Ard-Fheis that delegates had sufficient common sense to vote in favour of a capital gains tax. It may not suit Deputy Haughey. It certainly does not suit some of the people whom Deputy Colley is now trying to court. Most certainly it suits the overwhelming majority of Irish industrialists and investors. The Government will treat any problems they encounter and which may arise in the implementation of this Bill in a responsible manner. We will not resort to the kind of Opposition blackmail which is going on in relation to this Bill. I make these comments in a harsh tone but, to use a colloquial phrase, I am "browned off" at the special pleading of Deputy Colley on this matter during the past couple of months. He was long enough the holder of ministerial office to know that he is not codding anybody and that least of all the Minister for Finance is not impressed by that kind of argument.

I suggest to Deputy Colley that if he wants to be serious about the matter he should name some of the potential investors who he has alleged are withdrawing their money or prospective investment into this country. We will respond to them and point out to them that the fears expressed are unfounded and the misinterpretations by Deputy Colley and by Deputy O'Malley who, I gather, is now beginning to fly the same kite, are wrong and quite mischievous and even insidious in terms of helping this country to overcome its economic difficulties.

Mr. Colley

We, on this side of the House, are quite prepared to be judged on the basis of our record on economic management as against that of the Coalition.

Mr. R. Ryan

I should like to point out that there is a distinction between the Government exercising control over investment of profits and the Government subjecting such investment of profits to taxation. Control is something which would put limitations on the form an investment might take. That has never occurred in the past and is not proposed for the future.

I think it was Deputy Paddy Belton who mentioned that quite a number of investors from abroad put money into manufacturing industry to manufacture goods for export in anticipation of getting profits from those exports, tax exempt, then invested profits so made and so exempt from tax, in the hotel industry. That is true. The profits then generated from the hotel industry or from any other form of domestic investment which does not involve exports were subject to income taxation and always have been subject to income taxation, to the full rate—up to 80 per cent in cases where this was appropriate. No control is to be exercised by the Government over the form in which profits might be reinvested here and, as in the past, if profit is made from such reinvestment, it will be subject to tax unless it involves the export of manufactured goods. In future if such investment is ultimately disposed of and a gain is made on the disposal the gain only would be subject to capital gains tax. As it is axiomatic that capital gains are equivalent to income it is not at all inappropriate that they should be subjected to tax.

As Deputy Desmond says, there are countries which have no surplus money to invest abroad. We do not get investment in Ireland from impoverished countries who have no money to spend abroad. Any countries that have a surplus of money because of their wealth are countries who have long since had capital gains taxation and completely understand and accept the code. If there is any particular reaction on the part of those countries towards capital gains taxation in Ireland it would be one of wonderment that the capital gains system in Ireland is so benign, is so modest, compared with capital gains taxation systems which they have experienced in their own countries.

The only concern which the IDA expressed in relation to capital gains taxation was that they were anxious that capital gains tax would not be charged if there was a disposal of productive assets which were reinvested within the business. This is exactly what the Bill provides. It provides that if business assets are disposed of and reinvested, there will not be a charge to tax. So, if at any time, there was any worry or concern as to the IDA reflecting the views of others, that question has been more than met.

In fact, it was originally identified in the White Paper as something which ought to be done. We have done it in the Bill and I repeat what I said last night—that there has been no murmur of protest, concern or anxiety from any of the foreign investors here. At no time could anybody have been so naive as to expect that never would there be any change in the Irish system of capital taxation which was antiquated and clearly crying out for reform.

The IDA have put investors on notice since the Government decided that they would change the system of capital taxation we had—estate duties —into a modern form of capital gains tax, capital acquisition and wealth taxes. Therefore, I urge Fianna Fáil to desist from their mischief-making campaign and to accept what the world in general knows, that is that capital gains tax is an essential part of a modern progressive State and is a form of taxation which can be of help to business by discouraging people from converting productive business assets into assets which would be less beneficial to the community.

This form of taxation is one which is going to be easy on the taxpayer to pay, easy on the business man to make provision for, and which will be borne only when there is cash available to pay it without harm to business. It is a tax which is likely to encourage the retention of money in business which otherwise might be dissipated.

Mr. Colley

Does the Minister accept that in respect of a foreign investor faced with the choice of, on the one hand, taking his profits out of the country immediately or, on the other, reinvesting them here and in due course becoming liable to capital gains tax if he realises any portion of that investment and if there is any gain shown on it, the choice, in the main, would be to take the profits out?

Mr. R. Ryan

I do not, because if the person reinvests the profits and even realises the investment he will get 100 per cent of what he originally invested. That is not touched because there is no element of gain involved and he will get 76 per cent of the gain. Any businessman, when he is making an investment of any kind and is calculating his profit, makes allowance for whatever the tax liability will be on it. I am quite certain that a 76 per cent gain on an original investment will be satisfactory to people who, if they were to expatriate their investment to their own country and invest it would be called on to pay a higher capital gains tax in their own country than they would be required to pay in Ireland if they ever realised the asset. They could, of course, take their profits to other countries. However we have spelled all this out.

Question put.

The Committee divided: Tá, 51; Níl, 50.

Tá

• Barry, Richard.
• Begley, Michael.
• Belton, Paddy.
• Bermingham, Joseph.
• Bruton, John.
• Burke, Dick.
• Burke, Joan T.
• Burke, Liam.
• Cluskey, Frank.
• Collins, Edward.
• Conlan, John F.
• Coogan, Fintan.
• Cooney, Patrick M.
• Corish, Brendan.
• Cosgrave, Liam.
• Coughlan, Stephen.
• Crotty, Kieran.
• Cruise-O'Brien, Conor.
• Desmond, Barry.
• Desmond, Eileen.
• Dockrell, Henry P.
• Donegan, Patrick S.
• Donnellan, John.
• Esmonde, John G.
• Finn, Martin.
• Fitzpatrick, Tom (Cavan).
• Flanagan, Oliver J.
• Governey, Desmond.
• Griffin, Brendan.
• Harte, Patrick D.
• Hegarty, Patrick.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Keating, Justin.
• Kenny, Henry.
• Kyne, Thomas A.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McMahon, Larry.
• Malone, Patrick.
• Murphy, Michael P.
• O'Brien, Fergus.
• O'Leary, Michael.
• Pattison, Seamus.
• Ryan, John J.
• Ryan, Richie.
• Staunton, Myles.
• Taylor, Frank.
• Timmins, Godfrey.
• Toal, Brendan.
• White, James.

Níl

• Barrett, Sylvester.
• Blaney, Neil T.
• Brady Philip A.
• Briscoe, Ben.
• Brosnan, Seán.
• Browne, Seán.
• Burke, Raphael P.
• Callanan, John.
• Calleary, Seán.
• Colley, George.
• Collins, Gerard.
• Crinion, Brendan.
• Cunningham, Liam.
• Daly, Brendan.
• Davern, Noel.
• de Valera, Vivion.
• Dowling, Joe.
• Fahey, Jackie.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• French, Seán.
• Smith, Patrick.
• Timmons, Eugene.
• Tunney, Jim.
• Gallagher, Denis.
• Gibbons, Hugh.
• Haughey, Charles.
• Healy, Augustine A.
• Hussey, Thomas.
• Kenneally, William.
• Lalor, Patrick J.
• Lemass, Noel T.
• Leonard, James.
• Loughnane, William.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• Meaney, Tom.
• Moore, Seán.
• Murphy, Ciarán.
• Noonan, Michael.
• O'Connor, Timothy.
• O'Kennedy, Michael.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Walsh, Seán.
• Wilson, John P.
• Wyse, Pearse.

Tellers: Tá, Deputies Begley and B. Desmond; Níl, Deputies Lalor and Browne.

Question declared carried.

SECTION 5.

Question proposed: "That section 5 stand part of the Bill."

Mr. R. Ryan

This section provides that the capital gains which are to be charged to tax are the chargeable gains of the year of assessment after deducting allowable losses. Allowable losses include any losses from previous years other than years before 1974-75.

It sets out, also, that the tax is payable three months after the year of assessment or two months after the date of making the assessment, whichever is the later. I am sure the House will accept that if no liability to capital gains tax arose before April, 1974 it would not be appropriate to use any losses made before that period against gains which would be made subsequent to that date. This is in accordance with well-established principles that losses are not set off against gains if at the time the losses were incurred or profits arising from the same activity were not liable to tax.

Mr. Colley

I would not quarrel with the principles involved in this as enunciated by the Minister, but I will have some questions to raise in regard to the period during which allowable losses may be claimed subsequent to the year 1974-75. I think that is probably more appropriate on section 12. I will reserve my comments on that for the moment.

Question put and agreed to.

SECTION 6.

An Ceann Comhairle

Amendments Nos. 11 and 12 are consequential on amendment No. 10 and the three may be taken together.

Mr. R. Ryan

I move amendment No. 10:

In page 8, subsection (1), lines 32 and 33, to delete ", on making a claim in that behalf,".

As section 6 is drafted, it puts the onus on the taxpayer to put in a claim to the Revenue if he wishes to obtain the relief which the section provides by giving him the option to have half of the chargeable gains up to £5,000 and all his gains over that figure treated as if they were income chargeable at income tax rates. On the Second Stage the point was made that it would be more favourable to the taxpayer to place the onus on the Revenue Commissioners to provide this relief where it was due, without obliging the taxpayer to make the claim. I accept this proposition as a reasonable one and I, therefore, offer this amendment, which will delete the section which imposes the onus on the taxpayer and instead obliges the Revenue Commissioners to make the taxpayer aware of the more advantageous position which might be enjoyed by having this relief made payable to him.

Mr. Colley

I am glad to support this amendment which, as the Minister says, is being made by him in response to a point made on Second Stage by me and by others that in this case the onus should not be on the taxpayer. It quite clearly indicated new legislation. In the case of taxpayers who may not have professional advice available to them it would be manifestly unfair to impose the onus of election on the taxpayer. In additions, under the Capital Gains Tax legislation in Britain they seem to be able to operate successfully on the basis now provided in the amendment rather than that of the Bill.

I would like to ask the Minister if the effect of this amendment is that where a situation such as is envisaged in this section arises, the Revenue Commissioners would do more than draw the attention of the taxpayer to the fact that he has this option. Would they do more than that? Would they in fact show him the alternative results of approaching one way and the other and what the tax payable would be?

Mr. R. Ryan

The position here would be that the Revenue Commissioners will give the credit, not merely draw the taxpayer's attention to his right to make a claim. Even if the taxpayer has not made the claim himself they will give him the credit for it.

Mr. Colley

It will be a more favourable situation for the taxpayer?

Mr. R. Ryan

Yes. Human nature being what it is the Revenue Commissioners might occasionally overlook doing this. I do not think it is likely but even if that happened——

Mr. Colley

It can be remedied?

Mr. R. Ryan

Yes.

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 11:

In page 9, subsection (5) (a), lines 19 and 20, to delete "consequent on a claim under this section," and to substitute "under subsection (2),".

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 12:

In page 10, lines 7 to 11, to delete subsection (7).

Mr. Colley

In pursuance of the point we have just been discussing and the possibility raised by the Minister, a remote possibility I agree but it is possible, that a mistake might be made by the Revenue Commissioners, is it necessary to provide a substitute for subsection (7) which the Minister now proposes to delete in order to provide a mechanism for readjusting the wrong assessment and making the repayment?

Mr. R. Ryan

No. If the Revenue Commissioners made a mistake then the Revenue Commissioners would have to make this mistake good at any time. There would be no question of it being Statute bound or anything of that kind so the question of imposing a time limitation does not arise. The credit would have to be given if and when the mistake had been discovered.

Mr. Colley

Is there any provision in this Bill for the charging of interest on outstanding capital gains tax?

Mr. R. Ryan

Yes, there will be. It will be the same as income tax.

Mr. Colley

If there is——

Mr. R. Ryan

I know the question the Deputy is going to ask—whether or not there would be interest paid by the Revenue Commissioners in the event of a refund. Yes?

Mr. Colley

Provision will be made for this or is made? Which?

Mr. R. Ryan

I shall check whether it is made or not and if not it will be done. The intention is to do it.

Amendment agreed to.

Section 6, as amended, agreed to.

SECTION 7.

An Leas-Cheann Comhairle

Amendment No. 13 and with No. 13 Nos. 21, 23, 24, 25, 35, 43a, 49 and 52 if that is agreed.

Mr. Colley

I am afraid I have some reservation about that. Did you say, Sir, amendment No. 21 is one of those that might be taken? While there is some connection between them it seems to me that there are other matters being introduced in these which may not be adequately discussed. As far as I am concerned I do not propose to hold up discussion on them, but I would be happier if they were taken separately.

An Leas-Cheann Comhairle

All of them?

Mr. R. Ryan

Would the Deputy like to reserve his position until he hears the explanation and if he wishes to have them pursued separately I certainly will not object to that, if that is all right with the Chair.

Mr. Colley

Very well.

An Leas-Cheann Comhairle

I understand they will be discussed together and we can go back on any amendment on which Deputy Colley has reservations.

Mr. R. Ryan

I move amendment No. 13:

In page 10, after line 17, to insert the following subsection:

"(2) If under this Act an asset is not a chargeable asset, then, no chargeable gain or allowable loss shall accrue on its disposal."

This amendment is merely a transfer of the construction rule in subsection (5) of section 24 to this section which deals with assets for the purposes of capital gains tax. The rule is that where an asset is not a chargeable asset then any gain on its disposal will not be a chargeable gain and any loss on its disposal will not be an allowable loss.

Arising out of the proposed transfer of certain provisions in section 24 to section 19 it is necessary to extend the application of this construction rule so that it will have this effect for the purposes of the Act and not just for section 24.

I will deal with amendment No. 21 in relation to section 19. This amendment brings in a revised section and, taken together with the amendment to section 24, it involves no more than a re-arrangement. It is designed to give a better presentation of the original provisions without changing in any way their effect. The exemption provisions of section 24, which related to Government issues, including saving certificates and land bonds, have been transferred to section 19. It now covers all securities issued under the authority of the Minister for Finance. This enables the provisions of section 19 to be expressed in a more comprehensive manner and eliminates the need for a definition of specified securities and also the whole of Schedule 4 which consisted of a list of specified securities.

The House will recall that I mentioned in my speech on the Second Reading that I would be making this amendment eliminating the Schedule 4 which has specified securities by putting in an omnibus description in the Bill instead.

In regard to section 24, amendments 23, 24 and 25, the transfer of certain provisions of section 24 relating to Government issues to section 19 involves the deletion of subsection (1) which contains the same provisions. The reference to the prize bond legislation should read Finance (Miscellaneous Provisions) Act, 1956 and the proposed amendment rectifies an incorrect reference. As part of the rearrangement of the provisions relating to Government securities the construction rule in subsection 5 has been carried to section 7, amendment No. 13.

Section 32, amendment No. 35— this amendment is consequential on the deletion of the term "specified securities" from section 19.

Amendment No. 49 is to Schedule 2. I hope I am not going too fast for the Deputy. It is like a jury, it is very hard to chase around after all the different numbers. This amendment is also consequential on the deletion of the term "specified securities" in section 19.

Amendment No. 52 is to Schedule 5. This is a consequential amendment similar to amendments Nos. 35 and 49, that is on the deletion of the term "specified securities". It is also proposed to delete Schedule 4.

Mr. Colley

I am not opposed to the principle of what the Minister is doing but he will appreciate that it is a rather complex matter, when one takes all the amendments together, to see the overall effect. I take it that what the Minister intends to do is simply to tidy up the Bill but achieve the original effect. On the assumption that that is all that is being done, I have no objection. However, I should like to reserve the right, if some matter arises at a later stage, to ask the Minister to clarify in what way an amendment will operate, to ensure that it will have the same effect as the original Bill. I do not think there will be any difficulty on that matter.

Mr. R. Ryan

I will, of course, facilitate the Deputy. It strikes me that one can only see the effect when the Bill is in print. If any question arises it can be dealt with on Report Stage. However, if the Deputy wishes to raise any matter at this Stage, I shall only be too glad to deal with it.

Mr. Colley

There is another matter I should like to raise at this stage. The amendment before us at present is No. 13. It is proposed to insert a new subsection (2). If that insertion is made, which portion of the existing section will be subsection (1)?

Mr. R. Ryan

The existing one.

Mr. Colley

Section 7 at present does not have any specified subsection.

Mr. R. Ryan

Yes. Section 7 as it stands states what is included. It says: "All forms of property shall be assets for the purposes of this Act whether situated in the State or not, including ..." and so on. That would become (1) and (2) would be: "If under this Act an asset is not a chargeable asset ..." and so on.

Mr. Colley

Then the whole of the existing section 7 will become subsection (1)?

Mr. R. Ryan

Yes.

Mr. Colley

And the amendment will be subsection (2)?

Mr. R. Ryan

Yes. I remember having previous experience of this and tabling an amendment doing no more than inserting a figure before a paragraph and I was advised at the time that it was unnecessary; that the (1) will automatically go in once this adjustment is made to put in a subsection (2).

Amendment agreed to.

Question proposed: "That section 7, as amended, stand part of the Bill."

Mr. Colley

On this section, paragraph (c) of what will now be subsection (1), reads:

Any form of property created by the person disposing of it or otherwise becoming owned without being acquired ...

What I should like to know is could the Minister say whether this will cover the issue of shares for cash. I understand that some British commentators, in regard to a similar provision in British legislation, take the view that it would cover the issue of shares for cash. However, I am not clear on this matter.

Mr. R. Ryan

I am interested in the Deputy's comment. I have not had this issue brought to my notice. I shall certainly have a look at it.

Mr. Colley

If the Minister would have a look at it and then perhaps on the next Stage he would get an opportunity of commenting on the matter.

Mr. R. Ryan

The kind of asset we have in mind in paragraph (c) is property which has not been acquired as such but has been created, as it were, by the person owning it. For example, a business or profession, goodwill, copyright or something of that nature, these things could be acquired through personal skill over the years. They are not generally regarded as an acquisition which usually involves the transfer of something from one person to another.

Mr. Colley

I take it the Minister will look into the point I have raised and let me know his view in due course?

Mr. R. Ryan

Yes.

Question put and agreed to.

SECTION 8.

Mr. R. Ryan

I move amendment No. 14:

In page 10, subsection (2) (b), after line 53, to insert the following proviso:—

"Provided that paragraph (b) shall not have effect where the right to any capital sum falling within paragraph (a) (ii) is assigned after the event giving rise to the damage or injury to, or the loss or depreciation of, an asset has occurred and, for the purposes of this Act, such an assignment shall be deemed to be a disposal of an interest in the asset concerned."

This deals with capital sums received under a policy of insurance. As pointed out in my reply to the debate on the Second Reading, an amendment has become necessary to prevent avoidance of the charge imposed by this subsection on capital sums receiveable under a policy of insurance through assignment of right before the compensation has been paid over. Such an assignment is designed to take advantage of paragraph (b) which provides that the disposal of rights under a policy will not give rise to a chargeable gain or an allowable loss. Perhaps the best way of illustrating what I am talking about is to give an example. A building which costs, say, £10,000 is insured for the full value against all risks. The asset is then totally destroyed by fire and compensation is agreed at £10,000. Before payment of compensation, the policy holder assigns his rights under the policy to a third party for £10,000. Under paragraph (b) as it stands this assignment does not give rise to a chargeable gain or an allowable loss. However, the building has been destroyed and under section 12 this is a disposal of the asset. As no compensation can now be obtained, a capital loss accrues.

Mr. Colley

As no compensation can now be?

Mr. R. Ryan

No compensation can now be obtained because the person has assigned the rights of compensation to the other person and has received £10,000 for that. In reality, he has received the compensation but it is not in the nature of compensation, it is the proceeds of the sale of the insurance policy. This situation would then exist; consideration received on disposal, that is the destruction of the asset—nil. The cost of acquiring the asset would have been £10,000. The person would then have generated an artificial loss of £10,000 although he would have £10,000 in his pocket as a result of the sale of the insurance policy.

The revised subsection ensures that assignment of rights in the circumstances described is a chargeable occasion and this prevents the creation of an artificial loss when in fact the person concerned suffers no loss.

Mr. T.J. Fitzpatrick

(Dublin Central): If the policy was transferred, is that what the Minister said?

Mr. R. Ryan

Yes, where a person sells the policy, after the event. This is a case of the person knowing that he will get £10,000 on the policy.

Mr. Colley

And sells the right to recover that?

Mr. R. Ryan

Yes.

Mr. T.J. Fitzpatrick

(Dublin Central): Is that subject to a capital gains tax on £10,000, the transfer of the policy?

Mr. R. Ryan

No. He would not be able to treat the building as a loss for capital purposes, but he would not be involved in paying capital gains on the £10,000. We are ensuring that he would be in the same position as if he took the £10,000.

Mr. T.J. Fitzpatrick

(Dublin Central): He would be making capital gains on the £10,000 if he transferred his policy?

Mr. R. Ryan

He would be recovering where he would have been able to recover if instead of disposing of the insurance policy he collected the £10,000.

Mr. Colley

He would have a loss, too, to set off against it?

Mr. R. Ryan

He would, yes. All we are doing is preventing him from generating or fabricating a loss by disposing of the insurance policy.

Mr. Colley

I agree with the objective the Minister has in mind but I have some reservations about the way it is being done. Strictly speaking, what I am about to say ought to be said on the section, but since it does involve the amendment, perhaps I am in order in putting it forward on this. It seems to me if we regard what is being done in this subsection as being analogous to a double negative, we are getting a double double negative now. I am not sure the thing is not becoming much more complex than it need be. If we look at subsection (2) we find that it specifies certain things that will constitute a disposal of an asset, notwithstanding that no asset is acquired by the person paying the capital sum. It lists particular things. One of them it lists is:

(2) (ii) capital sums received under a policy of insurance of the risk of any kind of damage or injury to, or the loss or depreciation of, assets,

Paragraph (b) which we are hoping to amend reads as follows:

Without prejudice to paragraph (a) (ii) and notwithstanding the other provisions of this section, neither the rights of the insurer nor the rights of the insured under any policy of insurance, whether the risks insured relate to property or not, shall constitute an asset on the disposal of which a gain may accrue and in this paragraph "policy of insurance" does not include a policy of assurance on human life.

If we take those two together, they appear to be quite contradictory. The Minister is proposing to amend the subsection (b) and the effect of the amendment is, as the Minister has explained, to prevent the creation of an artificial loss.

We must look at how this is going to look when amended, if the amendment is accepted. It seems to me that we are going to end with two apparently quite contradictory provisions. The amendment, as proposed by the Minister, does not cover that. I am not at all sure that by starting from scratch again one might not end up with a small subsection which would make the thing far more intelligible than it would be with (a) (i) and (b) as amended. I do not know if I am adding to the confusion or if the Minister can see the contradiction I am talking about.

Mr. R. Ryan

If the Deputy has put a direct question I will give him a direct answer. I think he is adding to the confusion and I do not see the contradiction he is talking about. If there is any such contradiction, I certainly would be only too willing to correct it. We can have a look at it between now and the next Stage.

Mr. Colley

I did draw attention to this on Second Stage and I am therefore assuming that the Minister does not see any difficulty in this and I may have to pursue it a little further in order to try to point it out to him. Otherwise, I should be glad if he would demonstrate for me that the difficulty does not exist.

Mr. R. Ryan

I do not see any obstacle but I am perfectly willing to hear the Deputy if he is in difficulties. If he will identify them I will certainly resolve them, but if he is just in a difficulty that needs to be illuminated in order to have it disappear I will also try to be helpful.

Mr. T.J. Fitzpatrick

(Dublin Central): Assuming a person has a policy of £100,000 on a property and the property is completely destroyed, and he assigns the policy and then does not develop the property any more but sells the site for, say, £6,000, is there a capital gain there?

Mr. R. Ryan

Yes, a gain of £6,000.

Mr. T.J. Fitzpatrick

(Dublin Central): What about the £100,000 This policy has been taken out for £100,000 on a property and assigned.

Mr. R. Ryan

Is the Deputy talking about a situation where the asset destroyed is £100,000, he assigns the policy for £100,000 and then sells the site for £6,000? Then he has originally acquired an asset of £100,000 and disposes of it for £106,000. He has, therefore, made a gain of £6,000.

Mr. T.J. Fitzpatrick

(Dublin Central) No. This is a property that has been held for 20 years. Gradually you increase the policy on your property to cover you up to present day values. Ten years ago the property was covered for £50,000 and now it is covered for £100,000, to cover the value of the property. The property is destroyed by fire. It is covered for £100,000. I assign the £100,000. I do not develop the property but I sell the site for £6,000. Is there a capital gain?

Mr. R. Ryan

Yes. Suppose the property had not been destroyed at all. It is bought for £10,000 and is developed. The owner has a capital gain of £90,000, so £90,000 plus £6,000 is £96,000, and that would be subject to tax.

Mr. T.J. Fitzpatrick

(Dublin Central): But the policy is assigned. Can one claim on the policy?

Mr. R. Ryan

The policy presumably is not of any greater value than the asset.

Mr. T.J. Fitzpatrick

(Dublin Central): But there is a capital gain in the policy. Automatically there is a capital gain to cover the assets.

Mr. R. Ryan

Yes. An insurance policy in such a situation is supposed to cover no more than the value of the asset. We are providing that if a person were to realise the asset, it not having been destroyed by fire, then you would look to see what was the capital gain on that asset.

Mr. P. Belton

I see Deputy Fitzpatrick's point. One may have a property insured for £10,000 destroyed by fire. If one were to replace that property it would cost £100,000 but its market value the day before the fire would only have been £80,000. Which value is to be applied? This occurs also in the case of a car which has crashed. The insurance company may offer to pay a lump sum rather than argue about the cost of repairing the car. In Dublin the value of a property may depreciate because it is an area which is going down or because of a change in bus routes in the case of a licensed premises.

Mr. R. Ryan

Suppose we take a site which is worth £5,000. The premises are destroyed, the insurance company pays £100,000. You have £105,000 received when the site is sold and compensation is paid. If there is a claim that the market value of the place is not £100,000 but is only £90,000, say on 6th April, 1974, there would be a gain of £15,000. The property was only worth £90,000 but suddenly with the £105,000 received for it there is a gain of £15,000.

Mr. P. Belton

I am not speaking of 1974. I am speaking of five years hence. Suppose the premises is put up for auction and the owner gets an offer of £80,000, even though the replacement cost is £100,000. On which amount will the Revenue Commissioners make their valuation?

Mr. R. Ryan

The usual practice in insurance is to give only as much as the premises are worth.

Mr. P. Belton

He could insist on the replacement value.

Mr. R. Ryan

You mean the market value might be less than the actual cost of replacement?

Mr. P. Belton

Yes. The replacement of furniture and so on.

Mr. R. Ryan

Of course the structural work might be dearer. Nothing is ever simple in this world and perhaps if the Deputy would leave me with that. I can tell him section 29 deals with the question of compensation and insurance money. I am sure I will have devised a suitable answer to deal with that complex situation. Normally, of course, the insurance company will pay only whatever is the value of the property but I can see the point raised by Deputy Belton. They are rare enough situations, but nevertheless we must provide for them.

Mr. P. Belton

It can happen. When the Act dealing with rents was introduced rents could not be increased and houses became dilapidated. When this happens in an entire area the cost of replacing a business is much greater than the value of the site. If the area were cleared the value might increase but if this is not done the value of the site is very little compared with normal market value.

Mr. Colley

On the basis that the Minister is going to have a look at the point raised by Deputy Belton I do not want to pursue it. However, I would like to pursue a little further the point made by Deputy Fitzpatrick which I think was somewhat different from the one raised by Deputy Belton. I think I know the answer to this but I would like the Minister to clarify the matter. Let us take the case of a property acquired, say, ten years ago for £50,000, that is completely destroyed by fire this year and is insured for £100,000—and that is its current value —but before payment of the £100,000 by the insurance company the owner assigns the right to recover the £100,000 to somebody else. In those circumstances we have the position that the owner or the person assigning his rights under the insurance policy has, in fact, achieved a capital gain of £50,000, leaving aside the commencement date for capital gains, and he is liable to capital gains tax in those circumstances on £50,000. Is that the correct position?

Mr. R. Ryan

That is correct.

Mr. Colley

Could I now come back to the problem I was referring to earlier——

Mr. R. Ryan

If he re-invests the proceeds then, of course, there is no question of disposal and, therefore, no liability arises.

Mr. Colley

The liability is postponed.

Mr. R. Ryan

Yes, but it does not arise there and then. He can value it if he keeps it long enough.

Mr. Colley

Let me come back to the point I was raising on subsection (2) and I may direct the Minister's attention to the effect of what is being done here in the subsection? Certain specified operations will constitute the disposal of an asset and one of the specified operations is capital sums received under a policy of insurance in respect of damage or injury, loss or depreciation of assets, which is a pretty general description of an insurance policy. Therefore, that means that capital sums received on foot of a policy of insurance constitute disposal of an asset.

Subsection (b) says, notwithstanding what is stated there "neither the rights of the insurer nor the rights of the insured under any policy of insurance shall constitute an asset on the disposal of which a gain may accrue". Subsection (b) seems to be a direct contradiction of subsection (a) (i) and I wonder why they are both necessary. I am not talking about the amendment because I think that is achieving a different thing altogether. Nevertheless we cannot look at the amendment without looking at the effect of putting it in. For that purpose I would have to ask the Minister why should we have subsections (a) (i) and (b) which appear to be saying directly contradictory things? I do not think we can reconcile them as they stand.

Mr. R. Ryan

Paragraph (b) provides "that notwithstanding the provisions in subsections (1) and (2) the rights of the insurer or the insured under an insurance policy do not constitute chargeable assets". Policies of insurance on human life are excluded because such policies are specifically provided for in section 20.

Mr. Colley

What the Minister says I accept in regard to (b), but is that in direct contradiction of (a) (ii) which says specifically that capital sums received under a policy of insurance shall constitute disposal of an asset? Paragraph (b) goes on to say that even though that is so, the rights of the insured and the insurer do not amount to rights which can produce a taxable gain or which would produce an asset on the disposal of which a gain may accrue. Why do we have to have both? Are they not a contradiction of each other?

Mr. R. Ryan

Paragraph 2 (a) (ii) deals with capital sums actually received. Paragraph 2 (b) deals with rights under policies as distinct from capital sums which have actually been received.

Mr. Colley

If that were so, it means that if a person got the money under an insurance policy that is an asset but if he has a right to it it is not an asset. That cannot be correct.

Mr. R. Ryan

If one takes any situation in relation to property, a person has a right to dispose of it but no capital gain occurs until the disposal takes place. The point at which capital sums are received on an insurance policy is when an event occurs which is tantamount to a disposal, and that is the difference between the two.

Mr. Colley

Could the Minister say why it is necessary to specify this? Suppose he did not specify this? If the holding of a right, because of the absence of paragraph (b), were deemed to be an asset, it creates no problem, because, as the Minister says, nothing happens until it is disposed of. There can be no question of capital gains arising.

Mr. R. Ryan

There is a danger that if it were deemed to be an asset it could be argued that in any year as the period of cover runs out the value of that asset decreases and as you go on becomes nil. It is better to make it clear beyond all doubt that the chargeable asset does not arise until the actual capital sum is received. These are very interesting points and it is valuable to have them aired. I certainly will have a look at it although I cannot, at present, see any difficulty being created by specifying in the Bill that these things should be looked at in a different way. It is better to have the provisions in case arguments did arise about rights under insurance policies being treated as an asset.

Mr. Colley

I would appreciate it, because I do not see why the two clauses in question cannot be put together. A number of people who are more skilled than I am in this field have exactly the same difficulties. It requires amendment, and the amendment which the Minister has before us does not do the job I am talking about. It does another job which needs to be done, but it does not do the job I am talking about. Therefore, if the Minister finds, on reexamination, that it is necessary to amend it in some way, it may also be necessary to amend the amendment. Presumably he can do that, if necessary.

Amendment agreed to.

Question proposed: "That section 8, as amended, stand part of the Bill."

Mr. Colley

May I read subsection (6), which says:

An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of any acquisition of it, and as being disposed of free of any such interest or right subsisting at the time of the disposal; and where an asset is acquired subject to any such interest or right the full amount of the liability thereby assumed by the person acquiring the asset shall form part of the consideration for the acquisition and disposal in addition to any other consideration.

The latter part of that subsection makes sense to me. To give a simple example: a person buys a property which is subject to a mortgage—he buys for £20,000 and there is a £5,000 mortgage on it, on which he takes over the liability—then under the second part of the subsection he is deemed, in effect, to have acquired it for £25,000 or from the point of view of the seller he is deemed to have received £25,000. That seems to me to make sense. It also seems to me that the first part of the subsection is almost contradicting that and I am wondering if it is necessary. To go back to it:

An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of any acquisition of it....

There is another portion about disposal, but if we just take that part which states that it "shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of acquisition", what is the point of that when the second part of the subsection goes on to make it quite clear that if there is such an interest or right subsisting it shall be taken into account in assessing the cost of acquisition or the value of disposal?

Mr. R. Ryan

I can share to some extent the Deputy's misgivings but I am assured by the draftsman that this is the proper way in which to do it. It seems almost superfluous to separate the two different conditions. The sections provides that acquisition and disposals are to be regarded as free of interest by way of security. Also when an asset is disposed of, subject to its charges, it is to be treated as if the asset were disposed of ignoring the charge.

Mr. Colley

What does it mean to say that it is to be treated in that way? The next part of the subsection goes on to say specifically that it shall not be treated like that.

Mr. R. Ryan

The value of the charge has to be added to the consideration for the acquisition.

Mr. Colley

That means it is not being treated——

Mr. R. Ryan

Therefore, the cost of redeeming the charge will be taken into account in computing the gain or loss on any subsequent disposal of the asset.

Mr. Colley

That makes sense. However, if that is what is being done how can the Minister say that the assets will be treated as having been acquired free of any interest or right when, in fact, what the Minister is providing later on is that it will not be so treated? In effect, this is going to add to the interest or right to the consideration to get the true figure.

Mr. R. Ryan

The Deputy's point is, why cannot the sums be done at the time the asset is acquired.

Mr. Colley

It is more than that. It says: "an asset shall be treated as having been acquired ...." Perhaps we could get some enlightenment on what the word "treated" means in this context.

Mr. R. Ryan

It says it shall be treated as having been acquired without any charge. In other words, we take the gross rather than the net price.

Mr. Colley

Let me take the example of a property purchased for £20,000; it is subject to a mortgage of £5,000 and the purchaser takes on the liability for the mortgage. The second part of the subsection quite clearly says that in that case the cost of acquisition will amount to £25,000. That is clear but the first part says that it shall be treated as having been acquired free of the £5,000. It seems that the first part directly contradicts the second part.

Mr. P. Belton

The purchaser paid £20,000 in the first instance and that is the value of it.

Mr. Colley

The figure of £20,000 does not come into it at all for the purpose of capital gains. The first part of the subsection seems to say that it be treated as £20,000 without any regard to the security. It seems to contradict the second part.

Mr. R. Ryan

If a person acquires this asset for £20,000 he has to pay another £5,000 for it before he has full control over it, so that the total cost of the acquisition is not £20,000 but £25,000. That is the amount which eventually, if he disposes of the asset, he is entitled to deduct before any calculation is made of the capital gain.

Mr. Colley

There is no difficulty with that part, which is I think, the second part of the subsection. If the Minister would bear in mind now what he has just said and listen to the first part of the subsection. "An asset shall be treated as having been acquired free of any interest or right by way of security". In the case we are talking about, that would mean that he pays £20,000 and he takes on a mortgage of £5,000 but if it is to be treated as free of the mortgage, then £20,000 is the figure involved. What does the first part of the subsection mean when it says "shall be treated as having been acquired free of the interest."?

Mr. R. Ryan

If it was not expressed in this way you would have to say that the consideration was the purchase price and that would be unfair to the taxpayer because the consideration at the point of purchase is not merely £20,000 but it is also the acquisition of the liability to clear off the charge. To have been acquired free of the charge does not mean that the charge should not be taken into account in calculating what the asset actually cost the person concerned. The Deputy's argument here is that perhaps the language is confusing and is open to the interpretation that this should be written off altogether and not taken into account. The second part ensures that this is taken into account. I will look again and see if it can be expressed in a way which will not cause confusion. I would remind the House that I heard a tribute to the Irish parliamentary draftsmen as men the Lord might have called upon to write the ten commandments because they were able to express things with a greater clarity than the parliamentary draftsmen elsewhere.

Mr. O'Malley

It was a good thing the Revenue Commissioners did not write the ten commandments.

Mr. R. Ryan

I think they could have written them but they would have the same difficulty if people would not observe them.

Mr. Colley

I appreciate that this is not a matter that can be settled across the floor of the House. I would like the Minister to look at it again because I think there is a direct contradiction in this. While the Minister is having a look at it, would he consider something on these lines "where an asset is acquired subject to any interest or right by way of security subsisting at the time of any acquisition of it, and has been disposed of free of any such interest or rights subsisting at the time of the disposal, the full amount of the liability thereby assumed by the person acquiring the asset shall form part of the consideration for the acquisition and disposal in addition to any other consideration". That is what the subsection is trying to say. Perhaps the Minister would consider what I have proposed.

Mr. R. Ryan

I will have it examined.

Mr. Colley

I note that this section is dealing with disposal of assets and does not attempt to define the word "disposal" in full although it specifies certain things which would amount to a disposal. I take it from a subsequent section that "disposal" in this sense includes a gift.

Mr. R. Ryan

Disposal does not need to be defined because in ordinary meaning it means the transfer of ownership of an asset. Whether by way of sale or a gift, it is a disposal and, on that account, it is not required to have a definition section in the Bill, except to extend it where the ordinary meaning might not cover some activities.

Mr. Colley

It is difficult to say we are talking about the natural meaning of the word "disposal" when we go on to specify that we are covering instances where you acquire property without owning it. That is not the natural meaning of disposal. However, I am not going back over that, but I take it that it will be in order to refer to the question of gifts on section 9 rather than on this. Gifts are not specifically mentioned although they are covered.

Question put and agreed to.

SECTION 9.

An Leas-Cheann Comhairle

Amendments Nos. 15 and 16 are cognate and may be taken together.

Mr. O'Malley

I move amendment No. 15:

In page 11, line 40, after "gift)" to insert "except a gift to a child of the donor or to a nephew or niece of the donor where the donor has no children".

Section 9 in so far as it relates to gifts and the equivalent of gifts is new to the general scheme of capital gains taxation proposed by the Government in the White Paper of February, 1974 because it was made clear in that that capital gains taxation was one of the three forms of capital taxation the Government were proposing. It also stated that one of the three forms would be a capital acquisitions tax which would have the effect of imposing taxation on certain gifts, on certain legacies and on certain distributive shares on an intestacy.

The scheme, as set out in the White Paper, envisaged that the three forms of taxation would be separate and would not be overlapping. That was fair enough. I was very surprised to find, when this Bill was published, that the Minister had introduced into it a proposal which is contained in this section which would make a gift subject to capital gains tax, assuming, of course, there was a gain. There would almost inevitably be a gain nowadays because of inflation apart from any other consideration. As well as being liable to capital gains tax, which had never been envisaged, the gift or disposal of the assets by way of gift, would also be subject to capital acquisitions tax.

We are in difficulty here in discussing the question of gifts and of capital acquisitions without having seen the Capital Acquisitions Tax Bill. I made this point twice in the course of this debate. The problem is highlighted in this section because we can only surmise to some extent what the precise form of the capital acquisitions tax will be. Assuming that it is on the general lines of what is proposed in the White Paper there are clearly many instances where the subject matter of a gift will be subject simultaneously to both these forms of taxation.

That was never envisaged in the original scheme. My suggestion is that it runs contrary to that scheme and to any equitable form of taxation. One must also bear in mind that in some of these instances at least the assets disposed of by way of gift which will be subject to capital gains tax and capital acquisitions tax will subsequently be annually subject to wealth tax in the hands of the donee. In other words, the one block of assets will be subject, more or less simultaneously, to taxation under all three headings. At the same time it will be subject to two what should be mutually exclusive forms of taxation, capital gains and capital acquisitions.

The amendments which I put down, Nos. 15 and 16, have the effect of excluding the bulk of gifts from such double taxation. As a general rule gifts of substantial amounts of property are made, for the most part, by a father to his children or by a husband to his wife. In this Bill, as I understand it, transactions between spouses are not covered. Therefore, a gift from a husband to a wife, no matter how great the gift, is not regarded as a disposal for capital gains purposes. I take it I am right in that.

Mr. R. Ryan

It all depends on the asset.

Mr. P. Belton

The Deputy is.

Mr. O'Malley

Furthermore, as I understand this Bill, transfers of property on death do not count as disposals for the purpose of capital gains tax. Therefore, there are two major forms of gift excluded from the operation of the Bill, gifts to a wife and gifts on death. This leaves one with a third category of gift, one of the most common of all, a gift from a father to his children or possibly his grandchildren, or in the case of a man with no family, a gift from an uncle to a nephew or a niece, which is fairly common. For some reason the Minister seeks to bring in this third category and to make them subject to capital gains tax although they are already subject to capital acquisitions tax.

I cannot see any logical reason why if a gift on death, and a legacy or a distributive share on an intestacy is just a gift on death, or a gift to a wife, and should be exempt, why also a gift to a child or a nephew is not exempt. Of the three types of gift, I suggest that the most socially desirable, particularly in our circumstances, is an inter vivos gift by a father to his children. We constantly hear a lament about people holding on too long, but the effect of this section will be to discourage gifts from a father to his children or from an uncle to his nephew.

It would suit a man better, and suit his family better from a tax point of view, if the father kept the property and let it pass to his children on his death. If he does that, he is exempt from capital gains tax and they and the property are exempt. I know there are certain threshold figures in relation to this and that it does not apply to the smaller gifts, but excluding them, if he gives it to his children while he is still alive, whether it is a farm or a business or anything else, they are subject to capital acquisitions tax and to capital gains tax.

The capital gains tax is pretty hefty, particularly from the point of view of a farm or a business, 26 per cent on the gain. The gain may be substantial on the face of it, mainly because of inflation but also because of the work which the man himself put into it. Unless gifts to children, or in the circumstances I have outlined in the amendments, to nephews where the donor has not children of his own, are exempt we have a socially undesirable situation. Ageing parents will be encouraged to hold on to their property instead of being encouraged to get rid of it to their children.

We all know of many examples of farms and businesses being kept by men well into their seventies, perhaps in many cases into their eighties, but still will not give up, will not let go when they should be transferring these farms at the very latest when they are in their sixties if they have children suitable to take them over and willing to work them properly. Apart from the socially undesirable consequences of this there is an arbitrary distinction made against gifts inter vivos, gifts by a man while he is still alive. Why should he be able to give it to his wife free of tax and not to his children? Would it not be more desirable that the next generation should get it rather than the current generation of his family? Why should it be free of capital gains tax when it passes on his death and be subject to capital gains tax when it passes before he dies? The Minister, by bringing in this section in the form in which he has done is encouraging people to hold on and has discriminated arbitrarily against something that all of us regard as socially desirable, the inter vivos gift within the family.

These two amendments in my name would get over that situation. I am not saying that the wording of them is perfect. If the Minister will accept them in principle, as we have often said to him before, I am prepared to withdraw them and let the parliamentary draftsmen, whose merits have been so lauded in the House, prepare something to his own satisfaction. The principle of the case I am trying to make is clear in these amendments and is one that should be accepted. This would, in my view, create hardship for many people who have been endeavouring over the past year to make suitable arrangements in regard to their property, who were in the process of making arrangements on the basis of the White Paper of February, 1974, and who now find themselves quite arbitrarily discriminated against by reference to the passing over of their property to their children.

It seems to me that as a matter of basic principle it is wrong that these two apparently mutually exclusive forms of capital taxation should, in this particular instance, overlap and that we should have the same property subject to both capital gains and capital acquisitions tax. That was not envisaged in the White Paper and that is why the Minister made some sort of reference to this section in his opening speech which was to the effect that it was necessary, that this section ran counter to the principles of the White Paper all right but in order to avoid or prevent evasion it was necessary to put it in.

The present Minister for Finance is a great man for, as he puts it himself, preventing evasion, but it is quite an achievement on his part, I submit, that he has already taken anti-evasion steps before the Bill is enacted at all.

Surely it is possible to think out a scheme, particularly as this Bill is only in the early stages of Committee Stage and the other Bill, the Capital Acquisitions Bill, has not been published at all, whereby any kind of evasion could be avoided or prevented but at the same time one would not have the overlapping of these two forms of taxation which, as I say, and as the Minister has said by implication, runs contrary to the principles of capital taxation as set out in the White Paper.

Mr. P. Belton

There are some changes I would like to have seen on the Committee Stage of this Bill but this did not happen. I would have liked to have them but I would not be desperately pushed. The Minister has pointed out that we would be better off without death duties. I accept that and I would quite willingly have a capital gains tax any time in preference to paying death duties. One pays as much on insurance policies to cover death duties and even then one could never cover properly for them because an improvement in the business means extra cover. Otherwise, one would have to set up a trust fund but this must be set up six or seven years before death and if one hands the business over to a son he might blow it up quicker than the Revenue Commissioners would. To me, the abolition of death duties is one of the best things that ever happened here, particularly in the case of farmers who never until the last moment bothered about this or waited until they were 70 or 80 before handing over to a son who may be 60 years of age. I would agree with Deputy O'Malley in most of his points. The widow or a bereaved son had to sell the land in order to pay for debts caused by death duties. As far as the credit rating of the relatives of the person who dies is concerned they are an unknown quantity with the banks and business people and they find it difficult to get this credit rating for some time. The banks or other institutions who agree to give them the money will watch them that much more than the ordinary client.

The position is that the rich can afford it, they can provide the experts who establish trusts and various other ways of avoiding it for them. To me one of the greatest things in the White Paper was the gift tax and the abolition of death duties. The gift tax is one that a person knows that during his lifetime he can pay. A person knows exactly how much that tax is costing. To give away a property and pay gift tax rather than acquisition tax is better because there is not capital gains tax on acquisition and there is on a gift. It would be better if there was some way people could get around paying tax on gifts, and for this reason we may have to have a look at this again.

Surely we must treat gift tax on the same basis at least as an acquisition tax or at least give some concession towards it, that it is not completely taken in as a sale or a complete disposal. If one died two years later they could get it with nothing to be paid but if it is given two years prior to death tax has to be paid. I cannot see the sense, there may be a loophole in it. Over the years there were certain schemes to build a second house on the farm to make sure a son would not leave the land. There are various systems that cost so much money but did not work. Now we are going to force the farmer or the businessman to hold on to his money up to his 70th and 90th year rather than give it away, as they did in the 'fifties and 'sixties. I do not think it is fair inasmuch as a person who reaches the age of 80 or 90 might decide to give it away but to tie it up in various ways. To give it while a person is alive is the most important thing. The one thing I had against death duties was that it was the young person who was caught or the widow. With the gift tax the young person will be caught again.

It is possible that some tax consultant has already found a way of defeating the gift tax altogether if the capital gains tax is not on it; but otherwise I cannot see why it is not the same as the acquisitions tax. There should be some way of covering this because otherwise we are back again to all the unfairness of the death duties system.

Mr. R. Ryan

I think it might help if we were to look at the gifts which would be completely exempt from capital gains tax. Gifts of money would be exempt from capital gains tax. Gifts to a spouse would be exempt from capital gains tax. Gifts to a spouse of up to £150,000 would be exempt from capital acquisitions tax and no capital acquisitions tax is payable on a gift to a child up to £150,000, correspondingly higher for children; the gift of £150,000 to each child and £150,000 to the spouse on which there would not be capital acquisitions tax.

Mr. T.J. Fitzpatrick

(Dublin Central): £150,000 to each child?

Mr. R. Ryan

Yes. The objection that has been voiced about gifts between those persons will not apply to any case under £150,000 in this area. Gifts of money without limit will not be subjected to capital gains tax.

Mr. O'Malley

Cash?

Mr. R. Ryan

Yes. Farms or family businesses valued up to £150,000, transferred to the members of the immediate family will have no capital gains tax.

Mr. T.J. Fitzpatrick

(Dublin Central): That is over 55 years of age?

Mr. R. Ryan

No. The £150,000 mentioned is in the immediate family and the 55 years of age will apply to the donor. For gifts outside the family the limit is £50,000 if a person is transferring a farm or business on retirement and transferring it as a gift to someone other than a member of the family. No question of capital gains tax for the gifts of a private residence on grounds of up to one acre; no capital gains tax on any gifts of a chattel of a lesser value than £2,000 per item. Such gifts of £2,000 per item could be given away, with no question of capital gains tax.

Mr. T.J. Fitzpatrick

(Dublin Central): Is it £2,000 in the capital gains year?

Mr. R. Ryan

Capital gains is £500 per year. To continue, gifts of Government security, chattels with a life of less than 50 years.

Mr. O'Malley

Does that include leaseholders?

Mr. R. Ryan

State guaranteed stocks, land bonds and any gifts to charities and public bodies and national institutions. Therefore what Deputy O'Malley is talking about is a very limited number of comparatively fortunate people who might be receiving gifts in excess of these sums. I do not think it is unreasonable in a society which endeavours to achieve some social justice and also to achieve a certain amount of distributive justice that gifts of larger amounts than these should be subject to capital gains tax. Let us emphasise something which is often forgotten in this debate and that is that it is not the total gift which is to be subjected to a 26 per cent tax. It is only the element of gain received by the donor of the gift during his period of ownership, which in many cases could be a tiny fraction.

Mr. Colley

Could the Minister give an example of what he has in mind?

Mr. R. Ryan

For instance, if an asset worth £110,000 was given only £10,000 of the gift, that is the difference between that value and cost of £100,000 would be subjected to capital gains tax. It would not be the whole gift which would be affected. The rates of capital acquisitions tax, which are much less than the rates of estate duty, would be 25 per cent less in respect of gifts during life. It is apparent that the ordinary gift given by the vast majority of people—including the farms and businesses— during life will not be caught by the capital gains tax.

In so far as there are some who may be called upon by reason of the tremendous value of the gifts which they are receiving I think it is not unreasonable that people who have such considerable good fortune should be required to pay a modest tax on donations which are made. I cannot think of any other way in trying to achieve a fair system of taxation.

Death duties were wrong from two points of view. One, because if they tend to be applied at frightful rates— in many cases up to 55 per cent—they have to be paid in lump sum or in instalments over eight years in certain cases, or else they could be avoided altogether.

I cannot see that it is justifiable that we should be retaining a tax system in which the better off can easily avoid liability while people of considerably less means innocently walk into massive liabilities. There is a clear need to amend a system where the better off avoid taxation and the less well off, less educated, less sophisticated walk right into a trap which can take colossal amounts of property from them. So far I can understand Deputy O'Malley's interest in tabling amendments. I think that, on reflection, people will see that the scheme of taxes which we propose will exempt the majority of children and that in those circumstances the exemptions he seeks to have conferred upon the better off would not in equity be justified.

Mr. O'Malley

Since I spoke last on this Deputy Belton and the Minister have spoken and I think that I could summarise what they say as follows—if Deputy Belton agrees with me. The Minister has not in any sense contradicted the principle which I enunciated in these amendments and in what I said earlier. All he has done is to give a long list of examples, as he put it, of people who in these circumstances would not be subject to capital gains tax. I am not satisfied that the list of examples he gave is entirely accurate because one of the things which he has been trying to sell in this Houses during the course of this debate is the illusion that a gift to a child of a farm or business, on retirement, under £150,000 or a disposal to a child on retirement or a disposal outside the family under £50,000 is free of capital gains tax for all time. That is not so. The only sort of exemption that is obtained by the child on receipt of that gift or obtained by the donor on the making of that gift is postponement of the payment of capital gains tax until there is a subsequent disposal of the property.

The Minister, I have no doubt, knows that and he should not continually try to foster the illusion that gifts to children of farms and businesses up to £150,000 are free of tax. They are not. There is a postponement of the capital gains tax and that capital gains tax becomes payable as soon as there is any subsequent disposal. As far as one can judge from this—the Bill is desperately complicated; it is very hard to know exactly what it means—a part disposal will bring the payment of the deferred capital gains tax into operation. In other words, even in the case of a 200-acre farm where the son, after receipt of the gift and deferring the capital gains tax, sells a site for a house, a half-acre or quarter-acre for say £2,000, at the least pro rata capital gains tax is payable on that and it may well be held by the Revenue Commissioners to establish the value of the land as at that date.

It may well be that in addition to looking for the capital gains tax which then becomes immediately due and payable in respect of the partial sale, they will look for capital gains tax on the whole of the property on the basis that part of it had been disposed of subsequent to the gift to the child and that the deferment of taxation was now at an end and that they were entitled to look for it all.

There is a certainty that they are entitled to look for it on the proceeds of the sale on part of the property: I am not certain if they are also entitled to look for this tax on all of the property. There is a distinct possibility of that. Therefore, for the Minister to read out a list of exemptions is totally misleading. The important ones are not exemptions at all; they are only deferments of liability to tax. What the Minister is saying will be true if, and only if, the donee, the son, never disposes of any part of the property.

That is an unreal situation in Ireland today and everybody knows that. If it is a business, there may be certain aspects of it that one wants to get rid of: there could be surplus plant, surplus yards or buildings; there might be a line of the business that had become uneconomic and the donee would wish to dispose of in the interests of the business. If it is a farm of any size, even a small one, it is well known that people are going around to farmers all over the country asking them to sell a site. They offer what to the farmer, particularly nowadays when he is very hard-pressed for cash, is a very attractive price. It can be very attractive to sell a rood of land for £1,500. It may be more than his entire income for 1974; he may have had no income in 1974—many of them did not. Many of them lost thousands of pounds. They have to feed their wives and children and it may be very attractive to take £1,500 for a rood of land. Where, then, do they stand with capital gains tax if the son has got it as a gift from the father?

The Minister gave no answer whatever to the principle that I enunciated here when I moved these amendments. All he said was that there was a long list of things that it would not apply to, so why was I worried. I make two points in relation to that: first, the principle is wrong: it runs counter to the White Paper that these taxes will be mutually exclusive and, secondly, by no means are all the long list of people the Minister referred to, in principle, exempt from tax. They have a deferment of payment of tax but if there is any disposal afterwards of any part of the assets at the very least the tax becomes payable then on that disposal. It may well become payable on the whole lot, even the undisposed part of it.

I am grateful to Deputy Belton for what he said. He had to make some ritual noises but, apart from them, I think it is not unfair to say that he agrees with the principle of what I set out. It is also correct to say that the Minister agreed with it because he never criticised the principle; he only said that it will not apply to very many people. By saying that he inherently recognises the validity of what I am saying. He cannot contradict the principle of it and he cannot overcome his difficulty and his apparent refusal to accept these amendments by saying it will apply only to a fairly small number of people.

That is not an answer. A case is made that this is wrong in principle and the Minister, I think, agrees that it is. You have double taxation here. It was set out in the White Paper that anything which was subject to capital acquisitions tax would not be subject to capital gains tax. Here, is an example where it is. In practice more of these gifts which are subject to capital acquisitions tax and now, by virtue of this section to capital gains tax, will also be subject to an annual wealth tax. They will be hit three times within the first year: twice, on the making of the gift and once 12 months later and subsequently every 12 months after that, so far as the wealth tax is concerned. The Minister has made no attempt whatever to answer the point I have made that there is no way in which he can justify exempting gifts on death, exempting gifts to a wife but subjecting gifts to a child or to a nephew of the donor to capital gains tax.

The Minister has not denied this and Deputy Belton has agreed with me about the undesirability of people hanging on to property for very prolonged periods until they are into their seventies or eighties instead of giving it over to mature children who may be in their forties or fifties. Our fiscal and social legislation should at all times be geared to encouraging them to hand over their property at an earlier date. Instead, this section will do the direct opposite. It says, in effect, to a man who has a farm, "If you give it now to your son while you are alive and he does anything with it, by way of disposal of even a perch of the land, the whole thing will be subject to capital gains tax. You are running a grave risk in relation to that; you only have a temporary deferment of tax. But if you hold on to that until you die no capital gains tax can arise then if you leave it to your son in your will."

That is socially wrong. It is wrong in any country but particularly in Ireland where we have had—and still have—too much of this hanging-on into extreme old age to valuable property which becomes under-utilised, whether land or business, but particularly land.

I want to put it once again to the Minister that he cannot justify a situation in which a gift to a wife is free of capital gains tax, a gift on death to a wife or child or anyone else is free of capital gains tax—and the gift on death need not be to a child; it could be to a complete outsider altogether, a third cousin and it is still free of capital gains tax— but an inter vivos gift by the donor while he is alive to his son is subject to tax. That is wrong. The Minister reading out a list of exemptions or alleged partial exemptions to the tax does not defeat that principle. The Minister should get over the difficulty now by accepting that the principle which I have enunciated is valid and, if he does that, he should in fairness to all concerned accept the two amendments in my name.

Mr. R. Ryan

I cannot add anything to what I have already said. Deputy O'Malley has once again refused to accept that capital gains tax is charged only on the element of gain and that capital acquisitions tax is charged on the whole value. I cannot see that it is wrong to expect a small tax from those whose estates are over £150,000. Our proposal here to capture large disposals of that size and upwards may touch a few favoured people in the country but the masses are going to be relieved and they are not going to be involved in either capital gains tax or capital acquisitions tax.

I repeat that the level of exemption given—a gift of money which is the most frequent gift from parents to children would be exempt and family farms valued up to £150,000 can be exempt on transfer within the family —takes account of the kind of problem that Deputy O'Malley was referring to. The fact that the family residence on grounds up to one acre will be exempt, that chattels of less value than £2,000 will be exempt and certain other things that I have already——

Mr. T.J. Fitzpatrick

(Dublin Central): That is only deferring; it is not exempting, as Deputy O'Malley says.

Mr. R. Ryan

If the original owner were to dispose of his assets for cash or part of them he would have to pay capital gains tax. The donees are receiving something for nothing. I do not think it is unreasonable that the person should be asked to pay a small tax on the element of gain.

Mr. O'Malley

They will pay a tax on the capital acquisition: do not ask them also to pay this one.

Mr. R. Ryan

If Fianna Fáil want to get exemption for the privileged, wealthy few, that is their business, but I consider that we have an obligation to relieve the masses that we are relieving from the punitive rates of estate duty which now exist. All we are offering others is a system of instalment taxes which is much more preferable to the old system which caught the unsuspecting.

Suggestions have been made here that it was wrong to treat differently gifts arising on death and gifts arising inter vivos. Except in the case of suicide, a person has no control over death. It is not something that one normally plans. One could easily and one usually does plan arrangements for property during life. If a person is aware of the tax system when all these laws are passed they will know precisely what their position is.

If they make their gifts during life, transfers will be totally exempt from capital acquisitions, and the vast majority of them, because of the very generous thresholds there will be for the immediate family under the capital acquisitions tax, even if they are not totally exempt, they can only be caught for capital acquisitions tax above the threshholds which are being offered. The amount that they will pay in capital acquisitions tax in gifts inter vivos or on death will be much less than estate duty. If they pay the capital acquisitions tax on a gift inter vivos it will be 25 per cent less than the rate for transfers on death. Having regard to the total mix, that the capital gains arises only on the element of gain, and the capital acquisition arises on the total consideration only above these exempt levels of £150,000 and so forth, the arguments which have been advanced here of this posing difficulties and problems have little foundation.

Mr. Colley

The ridiculous kind of barrage to which we are subjected from time to time in this debate by the Minister when he finds himself cornered and without any logical answer to the case put forward was well illustrated in what we have just heard from him.

The Minister talked about the fact that Fianna Fáil—he did not mention Deputy Belton, but perhaps he meant to include him as well—were just trying to exempt the wealthy few and he was looking after the poor proletariat. I wonder what the Minister was doing, in that context, when he issued a White Paper which said in regard to disposals for the purpose of capital gains that disposals would include all changes of ownership except such transfers as would constitute a gift under the proposed capital acquisitions tax. When the Minister issued that White Paper was he trying to protect the wealthy few or was he trying to "do down" the poorer sections of our community? If the Minister was not doing this, what then was he talking about ten minutes ago in accusing us of this? Could we have an end to the nonsense in this debate and get down to the real issues?

Deputy O'Malley, supported by Deputy Belton, put the case for the amendments very clearly. He asked the Minister to justify the principle of the exemption from capital gains tax on gifts to a wife, while not exempting those to a child. The Minister said nothing on that question, but gave us instead a list of alleged exemptions. Nor did the Minister deal with a point I thought he would deal with and which, presumably, would have been the best case he could make. The justification the Minister gave on Second Stage for going back on the White Paper was that it was necessary in order to achieve anti-avoidance precautions. The only need for refusing to agree to these amendments, on the part of the Minister, would be that in so doing a loophole would be created by which avoidance measures would be taken. If that is the Minister's reason—this is the reason I am giving for the Minister—then certain issues arise. First, the Minister should spell out where precisely he sees the problem and perhaps we can get around it without going completely against the principle involved in these amendments and indeed accepted by the Minister when he issued the White Paper. Secondly, whatever measures of avoidance will be opened now, if one accepted these amendments, would also have been opened and in contemplation at the time of the issue of the White Paper. Yet, the White Paper said specifically and I repeat what Deputy O'Malley also stated in simpler terms, it amounted to this: there would be no capital gains tax where there was a capital acquisitions tax.

That position was the same at the time of the White Paper as it is now. I suggest that we are entitled to find out why there has been a change since. It is such a major and fundamental change that one would have thought the Minister would be at some pains to spell out precisely why this change occurred and to justify it. One would also have thought that, since this is the reason the Minister has given for this major departure, he would put it forward in response to the very reasoned case put forward by Deputy O'Malley. However, the Minister never mentioned it. The House and the public are entitled to more information from the Minister for Finance than the kind of nonsensical abuse to which we have been subjected without any basis in fact. If there is any basis for it, it applies with at least equal validity to the Minister than to us, having regard to the terms of the White Paper which he issued.

The Minister has also frequently in the course of this debate tried to take refuge in death duty "bashing" to justify what he is doing. The Minister is careful, whenever he does this, to try to compare the death duty system with capital gains tax and to ignore the imposition, at the same time, of capital acquisitions tax and wealth tax. If there is to be any reasonable comparison, that is the comparison one should make.

I presume Deputy Belton has studied the White Paper on capital taxation. If he has, he must know that contrary to what has been said, we are not seeing an end to death duties and all the problems which arise for people having to pay these duties because capital acquisitions tax will apply on death. However, that is only incidental to the argument. The real issues were clearly spelled out by Deputy O'Malley. They were not replied to by the Minister and the case made by Deputy O'Malley is only a portion of the case made by the Minister in the White Paper. I ask the Minister either to accept the amendments put forward by Deputy O'Malley or to make a reasoned case against them which at least will include an explanation for the switch from the basic principle laid down in the White Paper and an example of the situation he fears will arise if he accepts these amendments, so that we can examine it and see if the loophole which he fears cannot be dealt with in a way other than by the refusal of these amendments, with all the consequent breach of principles—to say no more than that— which is involved in that refusal.

Mr. R. Ryan

The White Paper, when we published it, was stated to be a description of a possible system of taxes. There is no commitment in the White Paper that everything in it is to be implemented. We invited, as the House knows, representations from all over the country and we also had consultations with many people.

Another point which emerged in the light of those consultations and studies which we carried out was that no other country had a comparable system of capital gains tax which exempts gifts. The collective wisdom of the world is something to be borne in mind, particularly when you see that if you allow gifts to be exempted there are many devices which enable a person to avoid capital gains tax entirely.

Mr. Colley

Do such countries have a capital acquisitions tax also?

Mr. R. Ryan

Yes, and wealth taxes too.

Mr. Colley

Surely that was known when the White Paper was issued?

Mr. R. Ryan

A person who had an asset could easily arrange to make a gift of it to a suitable relation or relations as instanced by Deputy O'Malley. That relation could dispose of the assets and hand back the proceeds of the sale to the donor.

Mr. Colley

Could the wife not do this?

Mr. R. Ryan

This anti-avoidance action must be taken. It is something to be said today for the ingenuity of man that there are so many complicated developments which could be set up to conceal such an arrangement. So far as the husband and wife are concerned they are treated as one in relation to their holdings. That is the reason why husband and wife situations can be treated in a different way from those of other members of the family. I insist upon returning to the true comparisons because we are changing the law now and people are entitled to see exactly what those changes will mean for them.

Under the new capital taxation proposals, a father could leave any amount of money to his children There would be no capital gains tax arising at all. Supposing some asset which involved capital gains tax was to be gifted to four children, giving them £150,000 apiece, no liability to capital acquisitions tax would arise in such a situation. Supposing the element of capital gain in those total gifts of £600,000 was a third of it— £200,000, the liability to capital gains tax on that distribution would be £52,000. Under the law which we now propose changing the liability to tax from estate duty would be £330,000.

Mr. Colley

What about the wealth tax?

Mr. R. Ryan

We will be coming to the wealth tax shortly and you will find that a person will be paying 1 per cent on property in excess of £100,000 if they were married, or £70,000 if they were single, over life, instead of paying at 55 per cent in the event of death. As Deputy P. Belton says, the 55 per cent will be paid by the widow or the family, at the time of death of the breadwinner. So, no matter what way we look at it or what hypothetical cases are produced, the balance of advantage certainly will be on the side of the overwhelming majority of taxpayers who will be exempt. When you take the specific exemptions which are written into the Bill itself, it will be seen that a mere fraction only of people in receipt of family gifts will be called upon to pay any of the taxes and capital gains tax in particular. On that account, I am unable to accept the amendment.

Mr. O'Malley

The Minister has not dealt at all with the question of deferment of tax.

Mr. P. Belton

Would the Minister have a look at it?

Mr. R. Ryan

I certainly will.

Mr. P. Belton

And make it the same as acquisitions tax because, with acquisitions tax, bits and pieces can be set off.

Mr. R. Ryan

The Deputy will appreciate that one of these taxes is paid by the donor and the other by the donee. I am not shutting out the possibility of an adjustment from my mind.

Mr. T.J. Fitzpatrick

(Dublin Central): I would be quite satisfied with the exemption for £150,000 threshold, if I thought it was a genuine exemption. Of course, it is only a postponement. Take the case of a widow whose husband has transferred the property to her on death. After some time, within the ten years, the widow is unable to maintain that property, be it business in value £150,000 or £100,000. Let us say this widow has four children; she has held the property for seven or eight years and there is an appreciation of capital. Through no fault of her own, she is forced to sell that business. She is going to be assessed at 1974 values. This is the category of person about whom I am speaking. These are genuine cases. Some exemption should be made. Certainly one should not go back to 1974 to value it, in seven or eight years' time, when this particular person is forced to sell. Certainly one cannot say there are generous exemptions where she is concerned; there are no exemptions at all, and such cases will arise as time goes on.

The amendments we put down last week for exemption after 15 years at least would cater for this type of case and alleviate hardship. Deputy O'Malley's amendment would go some of the way in meeting that type of case. One will find that there is very little generosity in the Minister's Bill with regard to that type of situation, if and when it arises.

Mr. R. Ryan

Of course, Deputy O'Malley's amendment does not deal with the widow about whom Deputy Fitzpatrick spoke.

Mr. T.J. Fitzpatrick

(Dublin Central): No.

Mr. O'Malley

We are trying to exempt a gift to a child. It is a most reasonable and socially desirable thing that fathers should give property to their children.

Mr. R. Ryan

The vast majority of such gifts will be exempt.

Mr. O'Malley

They are not exempt. The payment of the tax is deferred and the Minister has not contradicted that. It is simply deferred and in no sense is it exempt.

Mr. Colley

Is it not true, further, that in so far as—even as the Minister contends—an exemption arises, the donor must have attained the age of 55 years, and that he can do it once in his life? Is not that true? Is not that what the Minister was referring to?

Mr. R. Ryan

The Deputy is talking about family business; yes, that is right.

Mr. Colley

If a farmer or the owner of a business is making a gift to his children of a farm or business, or portion of it, in order to get the exemption the Minister is talking about he must have attained the age of 55 years——

Mr. O'Malley

He must have held it for ten years.

Mr. Colley

That is correct. If there is a family company he must have been engaged full time in it for the ten years. He can do it once in his life and the limit is the £150,000 mentioned by the Minister.

Mr. O'Malley

And he is not exempt: payment is only deferred.

Mr. Colley

That is true. As Deputy O'Malley has pointed out, there is even the question of the part disposal and the consequence of that. Let us not exaggerate what is supposed to be available. Let us get back to the principle involved. The Minister says that, in the case of the wife, there is no need to apply any restriction here at all, because the husband and the wife are treated as one. Perhaps that is a good theoretical argument but, in practice, what is the position? Does it not mean that where the Minister says here: if you make a gift to your child, we shall charge capital gains tax on it, primarily because if we do not do that, there will be a loophole for avoidance, but if you make the same gift to your wife, she can, as the Minister has described, dispose of the asset, get the cash, give it back to the husband, and there is no capital gains applied? The logic of this escapes me, except that there is a theoretical logic where you can regard the two as one, and so on. The practical logic of it is not clear.

I wonder would the Minister develop that a little further.

Mr. R. Ryan

The husband and wife are treated as one. Her act would be deemed to be his act and vice versa.

Mr. Colley

But in practice, not in theory. In practice would not it be as I have described?

Mr. R. Ryan

No, because it would be treated as one operation. Her act would be treated as his disposal. Therefore, the tax would be paid on the disposal. He cannot avoid it by passing it to his wife. There cannot be a fiddle on that basis.

Mr. Colley

If that is so, how could he avoid it on making the gift to the child? The Minister is taking two steps here.

Mr. R. Ryan

In the case of the gift to the child, the child and the father are not regarded, for tax purposes, as the one person.

Mr. Colley

Agreed, but that is on the theoretical basis. I am talking about the practical basis. From the practical point of view, what the Minister is saying is that in the event of a gift to the wife—that is step one— no tax arises. But if the wife disposes of the gift and gets cash to give back to the husband, that is step two, and that becomes liable to tax. I think that is what the Minister is saying. But in the case of the child, if the gift is made to the child—step one—the Minister says the tax has to arise there, otherwise there would be anti-avoidance. In the event of the child disposing of the gift and paying the money back to the father, as I see it under this Bill there would be two disposals and two sets of capital gains tax payable. Is that correct?

Mr. R. Ryan

If the child disposes? There would be tax paid on the disposal of the property to the child. If the child then sells, there is a cash gift from child to father and cash does not come within the capital gains liability. But if the son proceeds to give it back again, then there is another gift involved.

Mr. O'Malley

But if there is a gain between the acquisition by the child and the sale by the child there is a second set of capital gains tax paid.

Mr. R. Ryan

The child will then pay on the gain he made.

Mr. O'Malley

And the father has already paid on the gift to the child.

Mr. R. Ryan

The father has paid on the gain which he has made. If the child makes a subsequent gain, the child will be paying on that.

Mr. O'Malley

But the father made no gain; he gave a gift. How can you make a gain on a gift, for goodness sake?

Mr. T.J. Fitzpatrick

(Dublin Central): If the widow sells when she gets her property it will be valued then as from 1974. Is that right? It will be valued not from the date she acquired the property, but from 1974. Is not that the date of value?

Mr. R. Ryan

Yes.

Mr. O'Malley

The Minister is telling us—let us be clear about this before we finish—that in his view it is perfectly fair and all right that a father gives a gift to a child, the father pays capital gains tax on that gift even though he does not get one brass halfpenny from the child for the gift, because it is a gift; the father pays on that. Some years later the child goes along and, because he has to, or because he chooses—more often than not because he has to— he sells the property, the subject matter of that gift, and he pays capital gains tax again. That is supposed to be the Government's idea of encouraging the handing-on of property from one generation to the next. One go is not bad enough but there are two goes at it now. Finally, I would ask the Minister to have sense, stop this nonsense and accept these amendments.

Mr. R. Ryan

It would be a good deal better than paying 55 per cent on gains made during life under estate duty.

Mr. O'Malley

God help the Minister if that is his best argument. If the Minister finds 55 per cent so onerous on all these poor people who have to pay it with estates of over £200,000—people on whose account the Minister is bleeding all day—why did he not come in with a budget and reduce the 55 per cent to 25 per cent? The Minister has been in office for 23 tragic months in which time he brought in about 17 budgets. What was to stop him, in one of his 17 or so budgets in 23 months, reducing the top rate of estate duty from 55 per cent, where it applies only to near millionaires on whose account he has been bleeding all day? Did I hear the Minister reply?

An Leas-Cheann Comhairle

We are moving off the amendment.

Mr. O'Malley

If I moved off the amendment I merely ran down the blind alley that the Minister opened up. Now he has got himself stuck in it; he cannot turn his car and get out.

An Leas-Cheann Comhairle

Amendment No. 15.

Mr. O'Malley

We still do not know why the Minister, whose heart has bled for weeks about the unfortunate millionaire classes having to pay 55 per cent death duties, did not do anything for them during his 23 months in office.

Mr. R. Ryan

Are there any rules, Sir, requiring that the person in possession be left uninterrupted? I did not consider it in order to speak while Deputy O'Malley was on his feet. The answer to the Deputy's question is that I am bringing in a far better package than the old system.

Mr. O'Malley

What we have seen so far is a pretty shook lot.

Mr. R. Ryan

Deputies over there are shook.

Mr. Colley

It has the worst features of the old system plus a lot of new ones the Minister is creating as he goes along.

Mr. R. Ryan

We know who is shaking and who is bleeding for whom.

Mr. O'Malley

We are having anti-avoidance measures. We should really see this Bill as a bit of a milestone in Irish fiscal legislation. The Minister is bringing in here anti-avoidance measures to prevent evasion of capital gains tax and the wretched thing is not in force at all yet. That is one of the ways he is trying to justify this carry-on of crucifying a father when he makes a gift and crucifying the son again when he disposes of the gift.

An Leas-Cheann Comhairle

Is the Deputy withdrawing amendment No. 15?

Mr. O'Malley

No, I am not.

Amendment put.

The Committee divided: Tá, 50; Níl, 57.

Tá

• Barrett, Sylvester.
• Brady, Philip A.
• Briscoe, Ben.
• Brosnan, Seán.
• Browne, Seán.
• Brugha, Ruairí.
• Burke, Raphael P.
• Callanan, John.
• Calleary, Seán.
• Colley, George.
• Collins, Gerard.
• Crinion, Brendan.
• Cunningham, Liam.
• Daly, Brendan.
• Davern, Noel.
• de Valera, Vivion.
• Dowling, Joe.
• Fahey, Jackie.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• French, Seán.
• Gallagher, Denis.
• Gogan, Richard P.
• Haughey, Charles.
• Healy, Augustine A.
• Herbert, Michael.
• Kenneally, William.
• Lalor, Patrick J.
• Lemass, Noel T.
• Leonard, James.
• Loughnane, William.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• Meaney, Tom.
• Moore, Seán.
• Murphy, Ciarán.
• Noonan, Michael.
• O'Connor, Timothy.
• O'Kennedy, Michael.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Smith, Patrick.
• Timmons, Eugene.
• Tunney, Jim.
• Walsh, Seán.
• Wilson, John P.
• Wyse, Pearse.

Níl

• Barry, Richard.
• Begley, Michael.
• Belton, Luke.
• Belton, Paddy.
• Bermingham, Joseph.
• Bruton, John.
• Burke, Dick.
• Burke, Joan T.
• Burke, Liam.
• Byrne, Hugh.
• Cluskey, Frank.
• Collins, Edward.
• Conlan, John F.
• Coogan, Fintan.
• Cooney, Patrick M.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Coughlan, Stephen.
• Crotty, Kieran.
• Cruise-O'Brien, Conor.
• Desmond, Barry.
• Desmond, Eileen.
• Dockrell, Henry P.
• Dockrell, Maurice.
• Donegan, Patrick S.
• Donnellan, John.
• Esmonde, John G.
• Finn, Martin.
• Fitzpatrick, Tom (Cavan).
• Flanagan, Oliver J.
• Governey, Desmond.
• Griffin, Brendan.
• Harte, Patrick D.
• Hegarty, Patrick.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Keating, Justin.
• Kenny, Henry.
• Kyne, Thomas A.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McMahon, Larry.
• Malone, Patrick.
• Murphy, Michael P.
• O'Brien, Fergus.
• O'Connell, John.
• O'Leary, Michael.
• Pattison, Seamus.
• Ryan, John J.
• Ryan, Richie.
• Staunton, Myles.
• Taylor, Frank.
• Timmins, Godfrey.
• Toal, Brendan.
• Tully, James.
• White, James.

Tellers: Tá, Deputies Lalor and Browne; Níl, Deputies Begley and B. Desmond.

Amendment declared lost.

Amendment No. 16 not moved.

Mr. O'Malley

I move amendment No. 17:

In page 12, line 3, to add to the end of the section: "Provided further that whenever a disposal inter vivos results in the payment of Capital Acquisitions Tax, no Capital Gains Tax shall become payable on such disposal inter vivos.”

In putting down this amendment I have as my justification and my precedent the White Paper of February, 1974, issued by the Minister for Finance and the Government who made it perfectly clear in that paper that any disposal of assets which would give rise to capital acquisition tax would not also give rise to capital gains tax. Deputy Colley has already quoted a relevant part of the White Paper. I will just quote the relevant bit again which is to the effect that disposal would include all changes of ownership except such transfers as would constitute a gift under the proposed capital acquisitions tax. This charge on gifts represents a significant change in the White Paper proposals. It is a fundamental change, not merely of detail but of principle. We demonstrated in the debate on the two amendments which have just been disposed of precisely how unfair a fundamental change it is. We have shown that quite clearly and it has been accepted by at least Deputy Belton, if not by others. The argument we made in relation to it was a valid one. There was no justification for the Minister double taxing property which in his own White Paper he said specifically would not be taxed on the double. Once again I am forced to remark on the fact that this Bill is only one-third of the capital taxation proposals of the Government. A major change has been made now by the Minister in relation to capital gains tax. It may well be that equally major changes or even bigger changes are being made in relation to the capital acquisitions tax and to the wealth tax.

There are some major changes that we know of in the wealth tax as against the proposals in relation to what appeared in the White Paper. There was such an outcry that the Minister panicked under pressure from his own backbenchers and supporters and completely modified the wealth tax to the extent that even though it is still a wrong and unfair thing in principle as it was applied, the rates and thresholds and so on are considerably less onerous than they were in the original proposals. It may well be that the capital acquisitions tax is going to be radically different from what was in the White Paper. We are dealing in this section with a situation where capital gains tax is being imposed on property which is already subject to capital acquisitions tax. It is subject to capital gains tax as far as we know and assuming that the White Paper is fulfilled, it may be that a wider scope will be given to the capital acquisitions tax than was envisaged in the White Paper. Even more fundamental changes may be made than are made in relation to capital gains tax. It is wrong that the House should have to make a decision in what to all intents and purposes is a vacuum. We were trying to deal with the overlapping situation as between capital gains and capital acquisitions tax and we do not know what the capital acquisitions tax is to be because there is no certainty that the White Paper and the principles enunciated in it will be put into effect.

This amendment contains precisely the fundamental principle set out in the White Paper in relation to capital gains, that there could not and should not be double taxation but there is an overlap. The Minister cannot justify the principle of the overlap in any way except to give out about those wealthy people with more than £150,000 being penalised. In the same breath he is saying to the House that death duties were an enormous burden at the rate of 55 per cent. It shows how self-contradictory the Minister is and how unable he is to attempt to answer the principle that we have been enunciating in this and in the two previous amendments.

There is a situation in which people have been entirely in the dark for the past 12 months as to how they should order their affairs. When the White Paper was published many of them assumed that the Government meant what was said and that the principle enunciated in the White Paper would ultimately become law and they tried to order their affairs accordingly.

Within a few months of the White Paper appearing we had in the House, the Minister for Defence, who is collectively responsible with the Minister for Finance and others for the White Paper, launching an incredible attack on it. As a result of this and also because of the attacks by the backbenchers which, I understand, were delivered privately, huge changes were made in the wealth tax part of the proposals. A major change is made now in the capital gains part of the package and no reason for this is being given. This is an arrogant and flippant attitude to the House and to the country. The fact that people have acted under a misapprehension for the past 12 months does not matter to the Minister.

It is not good enough that a Government should change their minds so often. The Government should have thought out these things before they produced any White Paper. There is no point in the Minister saying they only brought out a White Paper so that it could be talked about. If a Government want to do that there is a recognised procedure—they should bring out a Green Paper.

Mr. R. Ryan

There never was a Green Paper produced in Ireland.

Mr. Colley

There were many discussion papers produced.

Mr. R. Ryan

That is a British term.

An Leas-Cheann Comhairle

Deputy O'Malley.

Mr. O'Malley

You can call it green, yellow, black or anything that you want but Governments—normal Governments at any rate—bring out documents for discussion. These may be called Green Papers.

Mr. R. Ryan

This is a British term.

Mr. O'Malley

So is a White Paper for that matter. The Minister for Defence turned on his colleagues and said that the White Paper had nothing to do with the Government, that it was got up by some crowd of civil servants and was being flogged around at Fianna Fáil cumann meetings. As a result of that and the other less exuberant protests that were made more privately than on the floor of this House, huge changes were made. Now there is another one here.

My amendment is precisely to put back into this Bill one of the fundamental principles in relation to capital gains tax and that appeared in the Government's White Paper of February, 1974, and if it does go back, the Minister for Finance is proclaiming himself as incompetent and inept and admitting that he seriously misled a large number of people for the past 12 months.

Mr. R. Ryan

The Minister for Finance is giving out about nobody but Deputy O'Malley says I am giving out about people who have wealth. I have never given out about them but I deprecate anybody who deplores people who have wealth but have pointed out that they have a greater capacity for paying tax than people who have no wealth. People with larger incomes have a greater capacity to pay more tax than people with smaller incomes. If anyone wants to contradict that principle, that approach to taxation, I should like to hear him justify it. If we can approach the debate from that angle, it would probably help improve the tone of the debate.

In view of the very high threshold proposed in the capital acquisitions tax for the immediate family, the overwhelming mass of gifts donated by people in Ireland will be free from capital acquisitions tax.

Furthermore, the very high thresholds of exemption provided in the capital gains tax, particularly for the transfer of farms and businesses will result in there being no capital gains tax where farms or businesses are transferred by gift to members of the same family. These are the simple and unemotive realities, the acceptance of which would help to improve people's understanding of the Bill. It is certain, therefore, that the vast majority of people will not be brought within either the capital acquisitions tax or the capital gains tax. It is only an exceptionally few fortunate better-off people who will be asked to pay either or both taxes. They have, as I have said, a greater capacity to pay tax than people who are less well-off. We must bear in mind that there are two persons involved in a gift situation. There is the donor who makes the gift and who it might be said is making a sacrifice by so doing or is satisfying his desire to help a friend out of natural love and affection as the legal phrase goes and there is also the beneficiary. The donor in making the gift is making a choice, making a deliberate decision. At the time he makes it, if he is above the thresholds of exemption, he is asked to pay a small amount of tax. This amount is related only to such gain as he made on the asset before he disposed of it.

Mr. O'Malley

How could he make a gain on something he was donating by way of gift?

Mr. R. Ryan

If people own wealth they accumulate gains on that wealth. That is well known. People buy many things in order to enjoy the increased value that attaches to these assets over the years.

Mr. O'Malley

They cannot enjoy the increased value until they sell the asset.

Mr. R. Ryan

If a donor so wishes, he can ask the donee to pay the capital gains tax and if that situation arises, then the value of the gift received by the donee will be measured as the net figure, that is, the amount of the gift less the capital gains tax charged.

Mr. O'Malley

But the donor is not gaining anything.

Mr. R. Ryan

He is giving something away. He is making his own decision. It is a voluntary choice. He need not do it if he does not wish to.

Mr. Colley

But he is not making a gain.

Mr. R. Ryan

He can say to whoever he is giving the gift: "I am quite prepared to give you the gift but the tax will have to come out of the gift." The beneficiary can say, if he wants to, and apparently Fianna Fáil think such idiots exist: "I do not want that gift, I am not going to pay that tax." Such people do not exist in this world outside the walls of a mental hospital.

Mr. O'Malley

He also pays capital acquisitions tax.

Mr. R. Ryan

Who is a beneficiary? A beneficiary is somebody who, in a gift situation, is getting something for nothing. What kind of an approach have the Deputies got to this——

Mr. O'Malley

But the donor is liable for tax.

Mr. R. Ryan

——when they say that somebody is getting something for nothing?

Mr. Colley

Apply that to death duties and see how it comes out.

Mr. O'Malley

Are legatees not getting something for nothing, too?

Mr. R. Ryan

Yes, but it does not justify if the gift is, as it is in many cases, the means of earning a family livelihood that half of that means should be confiscated. That is what has being happening under the old systems of taxation.

Mr. O'Malley

For those with net estates of more than £200,000.

Mr. R. Ryan

The taxable capacity of the beneficiary is enhanced, nobody can deny that. A beneficiary is in a better position to pay tax than a person who receives no benefits. What we are doing must be looked at in the context of the whole package of taxation. If we are to abolish death duties, as we propose to do, we have an obligation to ensure that certain capital above certain levels pays a reasonable amount of tax in lieu of death duties and pays it in a system which will ensure payment at a time of liquidity, at a time of ease, at the time of acquiring benefit and in instalments rather than in massive amounts.

As I have pointed out, the majority of people will not be called on to pay any of these taxes. There will be few cases, indeed, where the donor will bear the capital gains tax. If the donor does not wish, in addition to giving a specific gift to a person, to bear the tax himself, he can diminish the value of the proposed gift by the amount of the tax. The donee would then receive the net sum that is left after payment of tax.

The donee is the person who will bear the capital acquisitions tax if the donee happens to be above the fairly generous thresholds which it is proposed to confer on people, particularly within the immediate family. In a case where this happens and the donee has to pay the donor's capital gains tax as well, the amount of the gift, as I have said already, and on which he will bear capital acquisitions tax, will be reduced by the amount of capital gains tax he has to bear. This is a very reasonable arrangement, one which will confer relief on the mass of people who, by present standards, stand the risk of death duties. It is a system which will not impose hardship on anybody who is asked to pay the comparatively easier rates of duty that are proposed for the future as compared with the past.

Mr. Colley

The number of red herrings the Minister can produce per minute of speech is amazing on occasions. I do not want to follow them all but there are one or two that should be dealt with before we can really discuss what this amendment is about. The Minister referred to payment of these taxes, which are being substituted for death duties, by instalments as against the death duties which are payable in one lump sum. So far as death duties are concerned if they relate to land, they can be paid by instalments according to statute but as far as this Bill is concerned there is no provision for paying capital gains tax by instalments. There is no proposal in the White Paper for paying capital acquisitions tax by instalments so I do not quite understand what the Minister had in mind when he was saying that.

The Minister talked also about the abolition of death duties. The fact is that the capital acquisitions tax, if it follows on the lines of anything like what was in the White Paper, will apply a tax on anything passing on death. Therefore, the whole effort by the Minister to present what he is doing as being an alternative to death duties is, to say the least, unreal.

However, I should like now to come to the actual amendment. One might be forgiven for wondering what the amendment is about when one was listening to the Minister. Just to refresh our memories I shall read it:

Provided further that whenever a disposal inter vivos results in the payment of Capital Acquisitions Tax, no Capital Gains Tax shall become payable on such disposal inter vivos.

Whatever the Minister may say about exemptions—and we indicated earlier that we think his statements in regard to exemptions are misleading, to say the least—they do not arise in regard to this amendment because this provides only that where capital acquisitions tax is payable, capital gains tax will not be payable. That is what the amendment seeks to do.

I should like to hear the Minister explain to us why, in his view, in cases where this applies, capital acquisitions tax plus capital gains tax should be payable. The question he mentioned earlier about avoidance of capital gains tax on the face of it would appear to be irrelevant if in fact capital acquisitions tax is being paid. It is only in such cases that this amendment would apply. The case the Minister has been making seems to me to have ignored what the amendment is seeking to do. He should explain why he thinks, in cases where it applies, both capital gains and capital acquisitions tax should apply.

It is very important that he explain this not only because that is what the amendment is about but, also, because in the White Paper the Minister stated specifically that the very principle involved in this amendment was one that he accepted. The White Paper set out clearly that capital gains tax would not be payable where capital acquisitions tax was payable on a gift. The Minister has an obligation to explain the reason for the departure from this principle—correctly described by Deputy O'Malley as a fundamental principle—set out in the White Paper, not one of the details of rates of tax or thresholds but a fundamental principle that one tax would not apply where the other would apply. In other words that there should not be double taxation on these kinds of transactions. To change one's mind on that is a very fundamental change and it requires a full explanation. For the Minister to tell us that there is no other country not doing this does not convince me at all. I am not at all sure of the factual position in that regard but even if it were so, it was so before the White Paper was produced. Presumably the position was examined but, nevertheless, the decision was made by the Government on this principle. That decision was changed.

We are entitled to be told why it was changed and what was the difference in the position when the Bill was produced from the position obtaining when the White Paper was produced. The Minister does not discharge his duty in this regard by saying that the White Paper was only a set of proposals. In no way could a statement in the White Paper to the effect that the two taxes would not be applied together be described as just a proposal. That was clearly a decision in principle.

As pointed out by Deputy O'Malley what this amendment is seeking to do is to restore that principle. The Minister has to explain why the principle adumbrated by him and his colleagues in the White Paper and put forward in this amendment is unacceptable now.

Mr. R. Ryan

I think I have already given sufficient reason but it is interesting to note that the Opposition consider it proper that several aspects of the White Paper should have been departed from particularly if they involved improvements of thresholds.

Mr. Colley

They are peripheral.

Mr. R. Ryan

They are not. If, as a consequence of adjusting thresholds and the rates of tax, considerable relief is given to a large number of people—and that is one of the consequences of it—it is not at all inappropriate that other adjustments should be made because if there is loss of revenue at one end of the scale it is appropriate that the revenue should be collected at the other.

Mr. Colley

Is that the reason for this?

Mr. R. Ryan

If there are easements for taxpayers in some respects it is appropriate that there should be a balance at the other end. The White Paper is being faulted because it was not a Green Paper which is a concept that was never used previously here. The White Paper was offered as a consultation document. The various organisations and people who came to see me expressed their gratitude. They remarked that it was the first time any Government had engaged in such comprehensive consultations with people about tax proposals.

Mr. O'Malley

Like you did with the universities, is it?

Mr. R. Ryan

The situation was, I thought, one which was mutally advantageous. We have now devised this system which is going to exempt the vast majority. Probably more than 90 per cent of people who are now liable to pay estate duty will be exempt in the future from any form of capital taxation but others who previously were able to adjust their affairs so that they were not involved in estate duty will now find themselves in a situation where they will be asked to pay reasonable taxes on substantial holdings of wealth.

Mr. Colley

He does not believe what he is saying.

Mr. R. Ryan

On substantial holdings of wealth.

Mr. O'Malley

If all this is true, the Minister will get practically nothing.

Mr. R. Ryan

What we have done is to broaden the tax base and to close off opportunities for avoidance which previously existed. Complaints are coming from people who were previously in the fortunate position of engaging in avoidance. I am not criticising them for that. It was a perfectly legitimate practice. The Legislature has an obligation not to maintain a system which squeezes tax from the small earner who has no wealth and maintain a system which allows people of substantial wealth to avoid paying a fair share of taxes.

Mr. Colley

Is that why this principle was put in the White Paper?

Mr. R. Ryan

We are endeavouring to correct that We produced a White Paper with outline proposals. We have consulted with a vast number of people representing different interests. We have produced a comprehensive package in the Bill which achieves, we believe, a fair balance between the private individual and the community. We must be concerned with the welfare of both, and we have done that in a very generous way.

Mr. Colley

Out of all that one little gleam of information may have emerged, but it was given by the Minister in such a way that it is not clear. I should like to get it absolutely clear. Is the Minister telling the House that the reason he has changed from the principles set out in the White Paper, whereby both capital gains tax and capital acquisitions tax would not be applied to the one transaction, is that the adjustments he made or had to make in rates and in thresholds has affected the expected intake to the Exchequer and, that therefore, he has reversed what was in the White Paper and is applying both taxes to the one transaction? I do not want to wrong the Minister but it seems to me that that is what he was saying. I should like to be quite clear if that is what he is saying.

Mr. R. Ryan

I have offered several reasons and that is one.

Mr. Colley

Is that one?

Mr. R. Ryan

I have given the others. They are on the record. If the Deputies were not listening to me in the House, they will find from the record other reasons which were stated not only today but on the Second Reading as well.

Mr. Colley

We asked the Minister to develop the theme in regard to how the avoidance arises in respect of people who are paying capital acquisitions tax. He did not oblige us by explaining what he meant. However, it is interesting that the Minister gives this reason because it suggests that the Minister has some estimates, whereas he said previously he did not have estimates of the yield from the different proposed capital taxes. Presumably he could not have made this fundamental change without knowing that changing the thresholds and the rates would reduce the revenue to the Exchequer by certain amounts. The Minister has heretofore denied that he had any such estimates which could be stood over in any way. It is implied in what he has just said that he has those estimates. Would the Minister now tell us, "yes" or "no", has he got such estimates?

Mr. R. Ryan

He would be a right idiot who would not think that by increasing the thresholds of exemptions and concessions there would not be a lesser return.

Mr. Colley

Is the Minister doing it blindly without knowing anything about the likely outcome or does he have estimates?

Mr. R. Ryan

I have told the House before that I do not know and nobody knows the amount of avoidance which has previously taken place.

Mr. Colley

Then we may take it that he has made this fundamental change in the White Paper principle, blindly, not knowing what the result would be as far as the effect on the revenue was concerned and that he made the changes in the thresholds and the rates not knowing what the effect would be. Is that correct? If it is not correct, would the Minister deny it? We may take from the Minister's silence that he is unable to deny it. The logic of what he has said shows that that is the position and it merely confirms what we have learned of the Minister's performance with regard to this and other legislation—he is rushing on blindly, not knowing the consequences to the economy or to the Exchequer. It really is, to say the least, very disheartening to have to deal with a Minister who is so unthinking, uncaring and unknowing of the consequences of what he is doing.

Progress reported; Committee to sit again.