I should like to remind the House that amendments Nos. 27 and 29 are also being discussed with this amendment.
Capital Gains Tax Bill, 1974: Committee Stage (Resumed).
Debate resumed on amendment No. 20:
In subsection (1), page 18, lines 18 and 19, to delete "consideration for the disposal" and substitute "gain".
—(Deputy Colley)
The object of this amendment and of the cognate amendments is to have capital gains tax assessed on the basis of the gain made by the taxpayer without reference to the consideration of whatever the transaction is. I pointed out to the Minister that I consider this is a much more logical way to approach the matter. I also understand it is the way in which it is approached in Great Britain and that it gives a greater degree of control as to exemptions proposed.
I pointed out, in addition, that I am concerned here with the principle involved. If the Minister were to accept the principle involved in this amendment it would of course be necessary to re-assess the various thresholds of exemptions proposed in section 17 and other sections. As I pointed out, I do not have the information available. Probably only the Revenue Commissioners have the necessary information to assess what the thresholds should be. However, it is important that the principle should be accepted, not only because a capital gains tax should be a tax on a gain but also because anomalies arise if one does not accept this principle.
I have pointed out that one anomaly which can arise under a later section, if this principle is not accepted, is that a person could buy a farm for, say, £10,000 and sell it for £45,000. He would make a gain of £35,000 but he would not be liable to any capital gains tax. On the other hand, if a person were to buy a farm for £45,000 and sell it for £55,000, therefore having a gain of £10,000, he would be liable for capital gains tax on the £10,000. This does not seem to me to be a logical approach to capital gains tax. It seems to me that by assessing the tax on the actual gain one is doing what the tax purports to do and one is also in a position to control the extent of any exemption given.
This principle is, in fact, accepted in section 16 where it is provided that in any one year a gain not exceeding £500 is exempt from tax. In that case reference is to the gain. That is irrespective of the amount of the consideration. It could be that one would have a gain of £450 on a transaction in which the consideration was very small or on a transaction in which the consideration was very large. I think the approach in section 16 is a correct one because it is getting at the gain made by the taxpayer.
The more one thinks about it the more one sees that the question of the consideration involved in a particular transaction is totally irrelevant. The amount of the gain is relevant. The Minister was inclined to argue that there was an administrative advantage in referring to the consideration rather than the gain and that there would be additional work involved if one had to refer to the gain. I believe this is a mistaken view because of any transaction on which capital gains tax is assessed it is necessary to know the price at which the asset was acquired and the price at which it was disposed of, even if one adopts the approach in the Bill. Once one knows that, one knows the amount of the gain. Therefore, administratively, there does not appear to be any advantage whatever in the approach adopted in the Bill and in particular in section 17.
I urge the Minister, for all of these reasons, to accept this amendment in principle. I recognise the fact that, if he does accept it, it will be necessary to alter the thresholds set out in different sections. I am not in a position to suggest what those should be because the necessary information is not available to me. But I do not think the Minister would have undue difficulty in arriving at new thresholds if he were to accept the principle involved here, which I suggest is more logical, avoids anomalies and does not create any greater administrative burden on the Revenue Commissioners.
I have given very careful consideration to what Deputy Colley said on the last day. I think he has made no new point today. On the general point which he makes that it is gains which should be exempt, it is the gains that will be exempted in all these cases. This is being done by exempting the transaction. Of course, gain is involved in every transaction and I think the Deputy will agree gains might vary in different cases. The relief will be given on the whole gain for transactions up to the limits mentioned. There will also be a cut off point, which is equitable, as it will benefit those most in need of it and confer no benefit on those who are better off.
Could the Minister elaborate a little on that?
The form of the reliefs will make the tax fair and equitable and place the burden where it should be—on those who can bear it. The tax is concerned with gains but in the first instance it is a transaction for disposal which is involved. The value of that transaction is the first thing which strikes the ordinary person or business man. If the transaction, by reason of its size, is exempt, then any gain is exempt. This is a very acceptable principle and is one which is easily understood. It avoids the complication of working out gains, keeping records or engaging professional advisers. The principle of exempting the transaction makes things easier for the taxpayer in so far as he can readily understand what is involved and also he is not asked by the tax authorities to give any further information.
It is a much simpler taxation for the private citizen and the tax authorities and it will avoid the making of computations or the pursuit of people involved in transactions below these particular ceilings. There was at an earlier stage a great deal of argument about the reliefs linked with money values. Giving relief by reference to considerations is clearly so linked as the cost remains unchanged while the value of the consisderation is likely to rise. For example, A buys an asset for £1,000. If the value of the article increases up to £2,000 and if he sells it at any stage up to that point, the gain would be exempted from the tax. If it were to be contended that all the gain is an inflationary gain, then all the so-called inflationary gain is relieved. If it is not all an inflationary gain, then to the extent that there is an inflationary gain it is relieved as well as the balance of the gain.
The same reasoning applies to sections 26 and 27. All this is of special importance in relation to what some people would claim were inflationary gains when it is remembered that the threshold will be subject to regular review. When the threshold is reviewed the amount of the gain relieved is similarly reviewed. The basis of using consideration of these reliefs, therefore, seems on all grounds to be fair and equitable. This was the scheme of relief which was set out in the White Paper and as far as I am aware it appears to have been generally accepted.
It might be contended that the reliefs are, if anything, excessive, that very big gains could be relieved. For gains to be very large within the limit set in each section it would generally require retention of an asset over a fairly long period. I am providing a reasonable benefit to people who retain the asset for a long time, who are not speculators and for whom the gain accrues only once in a lifetime. Relief from tax could be considerable in such a case, and deservedly so. It does not seem reasonable to expect that relief should be given to very wealthy people. This is what would be done if an amount of gain, say, £5,000, £10,000 or £20,000 were to be exempted. Everyone would get it. If a flat amount of gain were free those who made only small gains would be relieved only to the extent of their small gains and those who made big gains over £10,000 and £20,000 for example, would be relieved to the extent of the flat amount even if total gains were £100,000, £500,000 or more.
(Dublin Central): How would it be exempted with £500,000?
I am not suggesting that it would be exempted with £500,000 but it would be exempted in respect of the element which was below the flat exemption so the person might have a tremendous gain but nonetheless receive the relief on part of the very substantial gain. To deal with this there must be a limit introduced to restrict the reliefs where the total gains exceed a certain amount. This would bring us back to something very like what is now being criticised. The case of a man buying a house for £45,000 and selling it for £55,000 was quoted by Deputy Colley. It seems to me he is dealing with the case of a short-term gain, as speculative gain. Suppose we take another example, a property purchased for £200,000 and sold quickly for £250,000. Why should any portion of the proceeds be relieved?
It would not be, of course, if the Minister had accepted our original amendment.
I cannot accept that. Even in the carefully selected example of Deputy Colley there is a small amount of marginal relief. The people for whom sections 26 and 27 were intended will look at the total money they have received and they will want to know if on a sale for a certain amount the proceeds will be tax-free. They will want to know if they can keep all the money or surrender some of it to the Revenue Commissioners. They will be concerned to know what to do with the proceeds of sale, either to buy an annuity or make some other financial arrangements. Those who are in the wealthier brackets will have ample resources to make suitable financial arrangements with sums like £200,000 and more, after paying their capital gains tax. Again it cannot be too strongly emphasised that for the people who sell a farm or family business after a long time in it their real concern is the amount they get on the sale. Such people should be relieved within the limits we set out in the White Paper and which are now embodied in the Bill no matter how much the gain is. The cases of "quick in and out" even where there is a smaller gain are not ones which were intended for the relief. The reliefs under these sections do not stand alone. There are those relating to wasting assets in section 18, the £500 exemption in section 16 and the private dwelling exemption in section 25. In all a very large package of redemptions and reliefs is being provided which is very generous by comparison with international standards.
As regards the relief under section 17, that is chattels up to a value of £2,000, the rationale behind this relief should be clear. It avoids unnecessary work of administration for both the private and public sector in tracing transactions and seeking details from individuals and from taxprayer and in making unproductive computations. It applies to each transaction involving chattels and there is no question of aggregation. If the test of exemption were to be the gain, every small transaction would have to be examined by the tax administration and accounted for by the taxpayers for comparison with the gain limit for the exemption. This would cause frustration and annoyance among taxpayers and would not be welcomed by them. Exemption by reference to the amount of consideration is simpler and readily understood.
Deputy Colley has mentioned the British practice. I understand that the British practice was one which caused an undue amount of administrative trouble. This is a case where we can learn by other people's mistakes. The British now have a provision which relates to consideration and the consideration is £1,000, only half of ours. The relief we are giving should be of great benefit to taxpayers in tax terms as well as saving them trouble. As each chattel is a separate item a person disposing of chattels could be relieved on, say, five transactions for gains of £3,000 to £5,000 or more. In section 26—the £50,000 case—relief will cover all relatively small farms and family businesses. As indicated on Second Stage, the amount will be reviewed as time goes on and the real value, in terms of gains, of the £50,000 exemption will therefore be maintained. To give a flat rate of relief in terms of gains would benefit people in relatively good circumstances and would not be equitable. Freedom from tax on a transaction of £50,000 would mean that most people realising this sum would retain all the proceeds of sale and could purchase a sizeable annuity.
Nobody is suggesting that.
I am talking about the effects of the legislation. In terms of gains a sale of £50,000 could mean exempting gains of very substantial amounts running into four or five figures depending on the amount paid for the property and how long it was owned.
In the case coming under section 27, the £150,000 case, the relief is very generous by any standards. At a modest estimate the gain would be £20,000. For farms and small businesses held for a lifetime it could of course be much more. The reliefs will cover the large bulk of the farms in Ireland and very many moderately sized businesses. The relief is designed to preserve this kind of farm and business and to prevent inflicting on them the confiscation that was formerly applied to them under the death duties code. The relief will in most cases in this country be better than any form of relief restricted to an amount of gain of £10,000, £20,000, £30,000 over a lifetime. The threshold will be subject to review, so the real value of the benefit will be preserved.
In order to get what we are talking about clear and not be at cross purposes I had better say, as I have already said a few times, that what I am concerned with here is the principle involved, not with the threshold of relief which would, if the principle involved in this amendment were accepted, of course require amendment.
I have also made it clear that the Minister is the only person who has available to him sufficient information to assess what the thresholds should be if this principle were accepted so that it is just a waste of time and effort for us to be pursuing the questions of what would happen if this amendment were accepted and the threshhold were not altered. It is an unreal situation which is not proposed from this side and certainly would not be accepted from the Minister's side. Let us get that part of it out of the way.
I want to suggest to the Minister that if he were to fix thresholds of relief in the different kind of circumstances envisaged in this Bill based on the gain, in other words, a flat figure of gain in different circumstances, as is done in section 16 where the figure is fixed at £500 per annum gain without reference to consideration at all—it is done in that case but not in the others—I want to suggest that that would benefit the less well off man, contrary to what the Minister says. If we take the example where this principle is accepted in section 16, where £500 per annum gain is exempted, clearly a gain of £500 is far more valuable to a person who is not very well off than to a millionaire to whom it means nothing? Therefore, fixing a flat rate of gain which is exempted is, in fact, contrary to what the Minister argued, to the benefit of people who are less well off than to the very wealthy. I would, therefore, dispute a good deal of the Minister's argument which was based, as far as I could understand it, on the argument that flat rates of gain were to the benefit of the well off. On the contrary, I would argue that they are to the benefit of the less well off.
I am also interested in and do not understand the Minister's argument in regard to administrative convenience. The Minister did say that to accept the principle of gain rather than consideration, as suggested in this amendment, would create administrative difficulty. I do not understand how he arrives at that conclusion and, in particular, if that argument of the Minister's is correct why does he base the exemption in section 16 on gain rather than consideration?
If his argument is correct, then section 16 must create a great many administrative problems, but I do not think that that is so. I would like the Minister to elaborate a little further as to why administrative difficulties of this kind are envisaged because, as I have said, on the Bill as it stands it is necessary to determine the cost of acquisition of an asset and the cost of disposal in order to assess liability for tax, in order to know the consideration; but once one has that information then one has the gain. So, where does the additional administrative work come in and, as I have said, if it does create additional administrative work why has he in section 16 adopted the approach that we are urging in the amendment? The two do not seem to hang together. The argument the Minister makes seems to fall down in the light of section 16 or, alternatively, he should change section 16.
The Minister did not deal, adequtely at any rate, with the anomalies that I have indicated. There are other anomalies which could be indicated. Just to confine them to the example I have given, in that example one finds that a person who makes a gain of £35,000 is totally exempt from capital gains tax but a person who makes a gain of £10,000 is liable. Surely that is not, on the face of it, an acceptable position? Is it not much more easy to control the extent of exemptions if one operates on the basis of gain and if one says, as is done in section 16, in the case of all taxpayers a gain not exceeding £500 in any one year will be exempt and if one says that in the case of somebody retiring from business, subject to the criteria laid down, a gain of £X is exempt, and in the different categories that are involved? In this way one can control the amount of gain which is exempt and can, as I have indicated, ensure that the person who is not so well off will benefit to a greater extent than the person who is very wealthy.
I cannot understand exactly what the objection is to this proposal. The alleged administrative difficulties may be an important element in the Minister's attitude to this amendment because if it could be shown that there are no greater administrative difficulties involved the logic of the amendment is inescapable. I would therefore like to ask the Minister, as I have said, if he could elaborate a little further on how exactly the administrative difficulties are envisaged having regard to the fact that as the Bill stands it is necessary to obtain the information which is needed to accept this amendment. In other words, there is not as far as I can see additional work involved and also having regard to the terms of section 16, which accepts the principle proposed in this amendment, how does the Minister envisage the administration of section 16 if the acceptance of that principle creates administrative difficulties?
We are dealing in section 17 with chattels, with tangible movable property the ownership of which can pass by simple delivery from one person to another. But in section 16 we are dealing with property other than tangible movable property and chattels. We are dealing with property which comes under notice in any event, like land and items of that nature, items which can be more easily recorded, traced, located. Tangible movable property of its very nature is something that can so easily and quickly pass that it is appropriate that such items, up to a reasonable level, should be exempt from capital gains tax. Otherwise there would be an obligation to prevent the sale of any tangible movable property to ensure that capital gains tax was paid. The multiplicity of difficulties that would arise from the obviously very large number of transactions which occur in these fields show that it would be unthinkable to operate a tax in that way.
Does the Minister envisage in the case of a transaction involving movable chattels that no returns would be required except in cases where the consideration exceeded £2,000 and, if so, how is it proposed to administer that? Does the same thing not apply? You are relying on the taxpayer, in effect, to make a return when the consideration is over £2,000. If your limit was on gains, for argument's sake, of £500 against movable chattels, would not you be in the same position, depending on the taxpayer to make a return where the gain was over £500, with spot checks here and there? Is not the administration the same?
There is, of course, an obligation on the taxpayer to furnish information. The same obligation applies to taxpayers in relation to their incomes. Some may be in receipt of incomes which are not brought to the notice of the Revenue Commissioners as a matter of routine but nevertheless there is an obligation to furnish the information. The larger the number of people on whom the obligation lies, of course, the more unworkable the tax should be. We have to have regard to the workability of any system.
Agreed.
It is in keeping with that thinking which is in the interests of the taxpayer as well as public administration—which the taxpayer has to pay in any case—that these reliefs are being provided. One would think we were imposing tax in this section. We are not. We are providing relief and doing so in the most sensible way possible, which is by looking only at the consideration and not requiring, in relation to any transaction in respect of a movable chattel, that accounts be furnished by the vendor in regard to the cost and sale prices. If we want to have a workable system we must keep the number of returns down to the minimum.
If that is so and if what is envisaged is that no returns would be required in the case of transactions involving moveable chattels where the consideration was under £2,000, would not the same thing apply if what were substituted for the £2,000 consideration were, say, £500 gains—in other words no returns would be required where the gain was under £500, if that were the figure? Is not this the same principle as far as administration is concerned?
The ordinary taxpayer's return form will have a section to be completed by the taxpayer giving details of the property transferred and if the detail given indicates that a chattel has been disposed of for a consideration not in excess of £2,000 such an item would be exempt and no further exploration would be needed. But if the Deputy's suggestion were to be applied one would have to look at every transaction in order to measure whether the gain was above or below whatever threshold might be fixed.
Surely that is not quite right. If the gains which were exempt in regard to moveable chattels were fixed at, say, £500, would not the position be that you do not have to look at a transaction where the gain was under £500?
Once you enter the realm of assessing gains you must look at much more detail than the simple sale price for a chattel, that is either above or below the figure of £2,000.
How then do you administer section 16 which is related to gains of £500?
There would be many fewer transactions of the type that is relieved under section 16 than you would have under section 17. Section 16 applies to all types of property, not merely chattels.
But in order to assess it, surely one would want to know about all transactions. That is not, obviously, what is envisaged; it would not be workable. It is not clear to me why the Minister thinks there would be a great deal more administrative work in applying the concept of gains in regard to this section on moveable chattels and subsequent sections as it is applied in section 16. In effect does not the same problem arise for the Revenue Commissioners in regard to section 16 as would arise if this amendment and the principle of it were accepted? How does the Minister distinguish between the work that would be involved in administering section 16 and in administering section 17 and the subsequent sections which also give reliefs?
Section 16 applies to all property; section 17 removes from further consideration all tangible moveable assets. That relieves the burden of work on both taxpayer and the Revenue Commissioners which arises under section 16. There is still a burden of work in section 16 but it will not arise where the transactions are small. If we did not have section 17 they would have to look at every transfer of a chattel to see if it created a tax liability. In section 16 we are dealing with all assets; section 17 removes a certain number of them from further consideration. In relation to the others, these would include many assets which would come under the notice of the State in any event through the Stamp Office, the furnishing of IVB particulars and so on and will be on record. Section 17 relieves the burden of work on section 16.
(Dublin Central): Do I take it that every conceivable transaction under section 16 will have to be processed by the Revenue Commissioners irrespective of whether it is under £500 or not?
No. They will only be concerned with cases where the gains are above £500 in any year.
(Dublin Central): It will be rather difficult to say that any trader without submitting his accounts properly had transactions that were or were not over £500. I imagine the Revenue Commissioners would want all documentation of these transactions to satisfy themselves.
Taxation of gains will fall to be assessed under the income tax code——
(Dublin Central): I am not talking about that.
The trader is in the business of making profit from his particular trade.
I am a little confused although I have tried to listen carefully to what the Minister and Deputy Colley have been saying. The Minister seems to be raising the question of the administrative feasibility of his scheme as well as levels. That is legitimate, but I am a little worried about all this legislation on the point of how assessment arises. Am I right in thinking that in effect it is the taxpayer himself who has to assess himself practically universally but that there is a penalty if he does not do it properly, the penalty being assessment with retrospective interest. I am talking of the code as a whole. Am I right in thinking the same will apply here? I am not arguing at the moment for or against the Minister's view but seeking to find out where we stand.
The Deputy would be wrong to exaggerate the problem here.
I do not want to exaggerate.
We have the cost at the time of acquisition and the price at the time of disposal and these will give easily ascertained figures.
(Dublin Central): Not to all property.
We said not all property.
Once you have that information you have the gain.
This is the point. One does not want to multiply the number of instances where this has to be calculated, so you provide a floor below which you will not look. Otherwise, you could easily get into a position where your pursuit of the gain might cost more than the tax you would collect by taxing the gain when ultimately ascertained. It is important to remember also that we are concerned not merely with gains in all these transactions but also with losses. If we are writing off one we are writing off the others, and we are avoiding an immense amount of administrative problems which could arise and which would be excessively costly in relation to any return.
May I come in here on the Minister's last remark? I want the Minister to accept that what I am saying is in the spirit of an inquiry and an anxiety to be helpful because I realise that, in whatever form the Bill is passed, the Revenue Commissioners will have the problem of administration and it will not be easy in any sense.
My first question with regard to the taxpayer assessing himself was not meant to be exaggerated. Neither was it meant to be a debating point nor an argument against what is being done. In the same spirit I should like to deal with the question of losses. It seems to me that possibly the Minister has now touched on the strongest argument he has. If you assess on a gain is it not possible equally to establish a loss as a negative gain and proceed on that basis? What is the objection to that? That is the first question. While I take the Minister's point about complicating procedures if the sale is not clear-cut, as it would be in this case, I would go a long way with the Minister, but it is a tangible movable property. In other words it is a movable chattel.
In the Minister's explanatory memorandum he gives an indication of his intention when he refers to paintings, jewellery, silverware, and so on. Surely the gain is as equally ascertainable as the value of the consideration for the disposal. The £2,000 is gone now. The consideration for the disposal will be known. I think we could concede that the only trouble is the base line. I am not very clear on that—the base from which it is starting.
Unlike some of his colleagues the Minister has been courteous enough to try to explain this to us and he has gone to considerable trouble to explain it. I should like to reciprocate. The second question is : is there a complication in regard to the base? The consideration is clear; the chattel is clear; the sale price is clear. It should be a simple sum to change the gain. Has the Minister any basic points which support his own argument?
Nowadays you can get an enormous price for an antique which might have been thrown out 20 or 30 years ago as a piece of useless family furniture. We all know the wooden and cast iron mangles which used to stand in the backyard of many a Dublin house. Take the cost of the acquisition of that at one stage and its disposal later on. In many cases it might have been passed down from one family to another. Yet, such works of art, as they are called nowadays, are fetching tremendous prices. You would obviously have difficulty in trying to determine what was the cost of acquisition of such an article.
There are many other cases such as cups and saucers, china and so on. Many items of household usage or personal usage are acquired by people through ordinary passing on from one generation to another. It is very difficult to determine the value at the time of acquisition of assets of that kind. Unless we have this exemption section putting a limit on the value of the property, we could run into a great number of difficulties with people claiming they had suffered a capital loss because some of the Sunday china had been broken and this should be set off against other assets which had to be bought to replace them.
A multitude of daily regular transactions are carried on by people which obviously it is unthinkable should come within the consideration of the Revenue Commissioners. It would be unthinkable also to impose upon the individuals engaged in these transactions the obligation of making a return to the Revenue Commissioners. The Revenue Commissioners could not operate a system which required them to keep detailed accounts of the intake and output of people in relation to their accumulation of chattels. That is what we are really avoiding in this section.
Could I suggest that the problem of losses is not insuperable? If, for argument sake, the exemption limit in regard to gains on movable chattels or movable property were £500, would it not be possible to provide that losses in the case of movable chattels of less than £500 would not be allowed? That is one way of approaching it.
As the Chair has pointed out, with this amendment we are discussing cognate amendments which I put down to sections 26 and 27 dealing respectively with the disposal of a business or farm on retirement and the disposal within the family of a business or farm. Since we are discussing those amendments in conjunction with this amendment I want to put it to the Minister that the arguments he has made about movable chattels do not apply in the case of the amendments proposed to sections 26 and 27. The nature of the property involved in those cases is similar to that in section 15 where he accepts the principle of the amendment and feels it can be administered without undue difficulty. If we leave aside section 17 for the moment and the movable property, could I ask the Minister what is his argument against applying the principle involved in the amendment to sections 26 and 27?
I thought I dealt with that in my earlier statement. I made it clear that we were anxious to avoid imposing on ordinary citizens anxiety in relation to liability to tax, anxiety which would be multiplied by uncertainty. If a person at the time of disposing of an asset knows its consideration, as a person will because it is easily recognisable, the person immediately knows whether or not liability to tax arises. If there is a question of calculation of gain there may be uncertainty as to the value of the property at the date on which the gain began to accrue.
(Dublin Central): If he knows the consideration, surely he would know that. He is bound to know what his gain will be if he knows the consideration and what he has purchased for.
There are several elements which have to be taken into account in calculating loss and gain. There could be losses incurred, there could be expenses involved in maintaining and improving the assets and so forth. Where you are dealing with matters of this kind taxation is much better related to a consideration which allows finality to be quickly reached. If property is being disposed of, and after all we are dealing here with very substantial disposals, it is highly desirable that finality be reached as quickly as possible. One of the great difficulties in relation to death duties has been the long delays in making assessments, although they were only concerned with consideration or value at the moment of death. If you were now, in addition to determining value at the moment of disposal, determining value at the time of acquisition and the losses or gains made in between, you would simply be multiplying the administrative difficulties for both the individuals concerned and the Revenue Commissioners. I do not believe it would be warranted by any additional revenue which might arise by applying the nicety of gain at the base rather than consideration.
I am sure the Minister and his advisers have the benefit of investigation into what is being done elsewhere in this type of taxation. I take it that he is having regard to elements of that nature in this, and could he give us any information on that? I may be taking a longer view on this, and it is not that I am in any way in disagreement with my colleagues. I am a member of the Opposition and I have my duty in that regard, but I am anxious, and I am sure my colleagues are too, to probe this from the point of view of the effect of everything we are doing here on the organisation that will have to make these Bills effective. What I notice and what Deputy Colley has obviously fixed on in this is that when you take the spirit of section 16, and the rest of the Bill, there seems to be a change of philosophy, if you like to call it that, and we naturally make the case "Why not be consistent in the approach?" and particularly as between section 16 and section 17.
I would like to put the question this way: Supposing there is a chattel—the Minister mentioned an antique—quite obviously on the gain on the thing, the actual sales price, the price of disposal can be invoked as an argument for either the amendment or for the Minister. In other words, it is a certain figure which can be equally interpreted as a value threshold if one wants to do it as the Minister is doing it but, as Deputy Colley said, as one element anyway it is a certain figure on which gain can be calculated, so that it really does not matter, if I have something in my attic and it is worth nothing today, and in five years' time because of a flash of fashion, it is worth a lot, because the actual consideration price is a determined thing and would have to be got for gain purposes anyway. Even as the Minister has the section, if the consideration is over £2,000, it has to be caught anyway, so on that basis I come down in favour of Deputy Colley's amendment on the basis of logicality and consistency with section 16 and find no advantage or disadvantage on the calculation up to that point.
In relation to what you calculate as the gain in a case like this, surely it is in relation to a value at a date. The argument so far when you come to that specific point may be in the Minister's favour and he may say "If there is any question about this, how are we going to get the base value?"—what I call a base value. It is much simpler to have the consideration in and how are you going to get the base value? As far as assets up to £2,000 are concerned, the argument is all in the Minister's favour, but where gains are payable, are we not bang up against the same problem, because in relation to the type of article I am talking about— I see the difficulty in this; there is no difficulty about disposal price—the difficulty arises about the price or the value at the base date? If we are only dealing with chattels up to £2,000 in value and giving an exemption, fine— I think I would have to put my hands up and capitulate to the Minister's point of view straight away, but supposing there is a chattel—and these are mentioned in the explanatory memorandum—worth £5,000, then you have a capital gain and you must relate to a base, and so where are you?
I may be, to the experts and to the Minister, displaying an ignorance for which I apologise if I am, but it is difficult enough to appreciate some of this legislation. The point is this, that if you have a chattel of £5,000 disposal value, how do you assess the gain on that? It is not a tax on the value of disposal; it is a tax on the gain. So if I have this article in my attic, once you go over the threshold limit, you have that problem which completely nullifies my capitulation to the Minister when the value is up to £2,000, and I am back to square one where I say with Deputy Colley that it is just as simple and as straightforward to calculate on the basis of gain instead of value, and the argument of consistency is there, as I say.
I have not quite followed this question of how the loss is more complicated, and perhaps I will leave the argument on that leg for the moment. I do not know if the Minister feels that I have completely misunderstood the situation but if I have I would be glad if he would refute me as definitely as he can.
In principle the Deputy is right when he says that problems arise. In practice they would arise much less often in dealing with chattels above £2,000 in value than in chattels which are below that value for the reason that there are fewer over £2,000 in value than there are below.
I can see that.
It is as simple as that. On the element of gain as against consideration one would have to pursue every transaction if one were relating exemption to gain to ascertain whether or not the gain involved in that transatcion was above or below exempted level. This would call for an appalling amount of surveillance which would be certain to cause irritation to the taxpayer. It would result in most appalling costs on the public side which the taxpayer would have to pay if we had to have a vast administrative machine to examine the multiplicity of transactions.
I should like to follow the Minister in the spirit in which he answered me which I appreciate. I take the Minister's point, but will the surveillance to see that the threshold involves £2,000 not involve the same surveillance?
That is the fallacy in the Minister's argument.
Surely it will require the same surveillance to see that somebody does not dispose of something for £5,000 and blandly return it at £2,000. The Minister can put the point to me that the buck will stop there and that it will be enough to determine the price; it will not be necessary to go back and determine the value at base. When all is said and done is that argument serious? Supposing I have a piece of jewellery and I dispose of it for £5,000. I get a receipt for that—obviously receipts will be important because one never knows when the Revenue Commissioners will trace that sale and put the onus on me—but if that transaction is to be supervised to the extent that will be necessary to ensure that I have not manoeuvred to produce a receipt showing £2,000 instead of £5,000 the Revenue Commissioners will have to go further than accepting the receipt. If the Minister goes behind that there is the question of identity. It will be as simple to calculate a gain as it will be to go on the market value.
Whether the gain or the market value exempts an article there will be a large number of transactions on which the Revenue Commissioners will have to take a chance. There will be a certain number of cases in which people will get away, as always. One of the greatest difficulties about modern taxation in all countries is that the tax collecting agencies are being driven more and more to hit or miss procedures and when the Revenue Commissioners hit they hit hard. It is like the old days when we did not have enough police the courts had to act on a somewhat similar principle. Obviously, the Revenue Commissioners cannot investigate every case and there will be a certain amount of evasion. The question is, how best can we facilitate them in their job if we are giving thresholds?
I am not convinced that there is any advantage in the Minister's point of view from that expressed in Deputy Colley's amendment and this brings me back to the consistency argument. In effect, there will be as close a supervision as possible. The Revenue Commissioners will try to make certain regulations that honest people will observe. That happens in regard to certain customs matters already and reputable people are careful not to give bogus receipts. This will have to be the base here also. There will be a reliance on the basic honesty of the majority and getting their co-operation. I am glad to say that by and large this can be expected but there must be the other element to deal with those who are not honest. When we come to the case that is being pursued it is as simple to deal with it on the basis of gain as it is to deal with it on the basis of market price. If somebody is caught he is caught on his own assessment and it is only fair that people who are dishonest should be caught for interest. In cases where there has been a genuine mistake they must be left to the discretion of the Revenue Commissioners who have not, in genuine cases, been unreasonable.
I should like to hear more on the question of losses. I cannot see why the Minister wants to stick on market value. The interpretation of the Bill and the distinction between different values I do not like.
(Dublin Central): I support Deputy Colley's amendment because I believe that, if at all possible, we must aim for simplicity in these Bills. Any of us in the business world knows only too well how complicated is our income tax code today. It is obvious that, when these Bills come into operation, very few lay people will be able to understand or, indeed, submit forms to comply with the requirements of the Revenue Commissioners. We should make every effort to simplify the code before this Bill is passed. It is obvious that the Revenue Commissioners themselves will have many problems on their hands.
When we consider this section alone, any man selling property—here it is movable chattels—is concerned about the profit he has made on it; what he paid for it, what he spent during the time he held it and what is his profit on its sale. As the Minister says, it is quite obvious we will have to ascertain what is this value; it will have to be ascertained how much was paid on its purchase and what its maintenance cost. Let us take the example of some antiques, jewellery or furniture, as the case may be. A person may buy such a piece of jewellery or furniture for a certain figure and sell it perhaps five years later for another, perhaps three times what he had paid originally. In the intervening period he may have paid very expensive insurance on it which, in my opinion, should be an allowable expense. He may have had to carry out expensive repairs, be it jewellery or property, if it is of a very valuable nature. All of those things will have to be deducted from the profit.
When we talk about deducting such expenses from the "consideration" it can be very confusing. The proper way to look at that is that that item was bought for a certain figure, sold for a certain figure and expenses are deductible from the profit derived. It is on that basis we should impose this tax and not complicate it by reference to a "consideration" here. The same procedure is followed when one forwards any set of accounts to an income tax accountant or the Revenue Commissioners—one gives one's turnover, gross profit and expenses and, when everything is broken down, there is left a nett profit. That is what we talk about in income tax. We should apply the same principle here and we would know where we were going. But the introduction of the word "consideration" confuses the issue. We will have to deduct from such "consideration" any expenses that accrued. All of those things, after proper deduction, would leave us with a gain and it is that about which we should be concerned in this Bill.
The Minister should re-examine this aspect in an endeavour to simplify it for the average person. If the Minister wants these Bills to be successful, as time progresses, if he wants co-operation from people generally, they must know exactly what is happening. It is all right for a tax consultant to tell one: This is what you owe and this is how it works. There are a lot of people in this country who cannot employ tax consultants. If the Minister can in any way simplify this procedure I am convinced he would be doing a good day's work; many people would be very thankful to him and undoubtedly he would receive more co-operation, so that the Bill would operate more efficiently.
The last time I intervened I omitted to make an important part of the argument I was advancing—when it would come to the checking; when the Revenue Commissioners, or their agents, would intervene, the determination of the base vale would be an almost automatic outcome of their investigation and, therefore, important. It nullifies part of the Minister's argument and reinforces the fact that I said that if one is above the £2,000 figure that had to be got at anyway.
In regard to the point Deputy Fitzpatrick was making, let us take an analogy with another thing about which the Minister is very much concerned—or which his predecessors introduced. We have had certain taxation experimentation here already; we went from wholesale tax to turnover tax to value-added tax. In the end the important thing with regard to VAT was, and is, uniformity of procedure, simplicity and uniformity, and certain clear-cut rules. PAYE is another area where the same kind of principle matters. Deputy Fitzpatrick, in effect, made the point—why not try and achieve simplicity by adhering to the one principle? This is important. It is confusing if there are different principles applied whereas, no matter how cumbersome the actual arithmetic can be sometimes, if it is one procedure applied straight down the line it is preferable to having a lot of arithmetically simple procedures leaving doubt as to which of them is applicable.
Therefore, I am referring to our experience in the areas I have mentioned. There is a little of this to be considered with regard to this section. It merely reinforces the point we are making for consistency with section 16.
Well, I pointed out —I do not like having to repeat——
I did not want to put the Minister to the trouble either.
I have pointed out that section 17 relieves the amount of work which section 16 generates. I accept that section 16 generates an amount of work which is relieved, as far as all tangible, movable assets are concerned, by section 17 where those assets are under £2,000 market value at the time of their disposal. What could be simpler than that? The expression of the same price: that is a simple matter.
And relieves it for the person selling.
Yes; relieves it for everybody—the Revenue Commissioners and the person selling.
I am querying that it relieves it for the Revenue Commissioners.
It does, most certainly. The Revenue Commissioners, on learning that an asset has been disposed of for a consideration of less than £2,000, do not have to inquire any further.
Deputy Fitzpatrick mentioned the importance of easing the anxiety of taxpayers, that they should know precisely where they stand. A person on disposing of an asset, and not receiving any more than £2,000 for it knows that he has not to worry about it any further, no liability to tax arises.
(Dublin Central): It is beyond that figure that I am concerned about confusion.
The purpose of the capital gains tax is to collect tax on a capital gain in respect of fairly substantial transfers of property. It is not intended to relieve all items which would come under the description of a tangible, movable asset. If it were, we would not be introducing this Bill. I make no apology for catching the larger fish; it is intended to catch the larger fish. But we do not want to have to measure the length of every pinkeen simply because we are going to levy a tax on the sharks.
Sections 16, 17 and others, taken together, avoid the obligation of having to assess the gain on all smaller transactions. I want to emphasise that one must also, when considering the calculation of gains in this area, consider the problem of calculation of costs and the setting off of one against the other. There is an exemption in respect of the capital gain in section 16 on items which come under notice without much difficulty. In section 17 we are exempting those of a certain category, below a certain level, which do not normally come under notice, and which it would be very costly and very irritating to police in order to get perfection in operation. It is normal practice in tax law to have a blend of perfect principle and pragmatic operation. The principle may have to be qualified in the interests of what is practical of achievement, and these two sections taken together operate in that way.
Deputy Fitzpatrick said he assumed that insurance and repair costs would be allowable as losses. I should like to disabuse him of any notion of that kind. They would not be allowable, for they would not be capital investment. But any expenditure which would improve an asset, which would enhance its value, which would be adding to its capital nature or substance, could be taken into account. Ordinary maintenance, insurance and so on are not capital items and would not be available to set off for capital purposes.
(Dublin Central): There is insurance taken out for antiques that can be quite expensive. Surely that should be allowed.
No, it is not allowed. It is ordinary day-to-day expenditure which a person engages in, but that itself is not part of the intrinsic capital value of the asset.
(Dublin Central): It is.
But it would not be reflected in the sale price.
(Dublin Central): Of course it would be reflected.
How?
(Dublin Central): If I bought an article for £4,000 four years ago I had to get it insured. If I did nothing with that article but held it for four years it would appreciate. Five years later it makes £6,000 by virtue of the fact that I have held my property and spent money protecting it by insurance. I should be allowed for it.
Whether you insured the property or not would not be reflected in the price which a stranger would pay you for the asset when you would be disposing of it, and that is the only basis on which you can calculate the gain. The only way you can calculate the consideration is to look at the price received for the asset. The fact that these problems are thrown up helps to strengthen our argument for looking at the consideration simply and cleanly. Deputy de Valera said he assumed we had examined the experience in other administrations. Indeed we have, but it is interesting that the British were forced into a consideration exemption because of the tremendous cost and difficulty of operating a gains exemption. I think we would be wise to be guided by their experience, and if we were not to be so guided, we have again and again gone into the kind of problems that Deputy Fitzpatrick, in good faith, has offered as issues which he thought should be taken into account as loss items or cost items. The fact is that they could not be, and in no administrations that I know of are they taken into consideration for the purpose of calculating the capital value of an asset.
(Dublin Central): I am not talking about taking the capital value into account except in relation to the capital gain on the article. If you have to pay heavy insurance for ten years, it is not a working business; you are just paying insurance to protect the property. That should be allowable on the capital gain you make.
It might be a prudent thing to do, but it is not part of the process which generates the gain being taxed.
(Dublin Central): I question that decision.
Whatever view one may take about the point put forward by Deputy Fitzpatrick, the question of what should or should not be allowed is something we shall be coming to later——
Yes.
——and we can pursue that. However, I do not want to suggest to the Minister that we are now discussing amendments to sections 17, 26 and 27. The Minister accepts that the principle we are advocating is, in fact, proposed to be operated by him in section 16, but he says in order to operate it in these other sections it could produce the situation in which there had to be, in effect, an army employed by the Revenue Commissioners to police it and would create grave difficulties for the taxpayer. I think that is the substance of his argument.
I want to put it to the Minister that that argument cannot be true in relation to sections 26 and 27, because what is involved there is property in respect of which details have to be furnished anyway, as he pointed out in regard to section 16—the submission of documents for stamping and so on. Such details have to be furnished in relation to the property envisaged in sections 26 and 27. Therefore, the Minister's arguments have relevance only in relation to section 17. This is the kernel of the whole thing that I tried to get at at the beginning, and I am afraid that, despite the length of time we have spent on it, we have not got to the kernel.
What the Minister is saying in relation to section 17 and in relation to movable property, as I understand it, is this: by operating on the basis of a consideration of £2,000, the Revenue Commissioners merely have to look at the consideration and if it is under £2,000 they do not have to look any further. If it is over £2,000, then they have to go into the details of the transaction; and because, as the Minister said, most items are worth less than £2,000, a great many transactions would be excluded.
If that were so, there would be no answer to the Minister's argument, but I think he is mistaken in what he says. In fact the way it will work is this: when transactions are referred to and returned by a taxpayer as showing a consideration less than £2,000 in respect of movable property, in the normal way the Revenue Commissioners will say: "We do not have to concern ourselves with that." That is true, but in order to avoid wide-scale abuse, they must at least do some spot checks on these transactions and, in cases like that, look for more than, as Deputy de Valera said, merely a receipt; otherwise the whole thing would be wide open to abuse.
What I want to suggest is that precisely the same thing would be done by the Revenue Commissioners if what they had to concern themselves with was that a gain not exceeding, say, £500 on movable property would not be liable to tax. Where they got a return from a taxpayer showing such a transaction with a gain of less than £500, they would, in the vast majority of cases, ignore it, but they would have to do a spot check on some of these in order to ensure it was not being abused. This is the kernel of the thing as far as I am concerned in relation to section 17. If the Minister can explain why there is a difference in procedure in those two cases I will be much happier with the situation as the Minister has argued it. The Minister has said more than once that if one went on the base consideration the Revenue Commissioners would have to go into every transaction——
On the basis of gain.
Did I say "consideration"? I meant "gain". On that basis, I do not think that what the Minister has said is correct. I should like to know why the Minister thinks that the procedure to be followed by the commissioners will be different in the case of where, on the one hand, they have to consider whether the consideration is above or below £2,000, and the procedure to be followed if the gain is above or below £500. What is the precise difference in the procedure involved for the Revenue Commissioners?
I am sorry but I cannot take the matter any further.
I do not want to push the Minister to repeat himself. The Minister asserted that there was a difference but he did not spell it out.
There is a very practical difference, and I think that is a sufficient answer. You have far fewer cases if you have "consideration" clearly stated than if you take this threshold of gain of £500. There are two factors to be looked at in all such cases, the cost of disposal and the cost of acquisition.
Yes, in cases above £500. Supposing a taxpayer shows a return of gain of £450, is it not true the commissioners in most cases will not concern themselves with details of the transaction?
The Deputy will agree there will be far more need to check the base of the ultimate disposal cost if you are relying on gains——
I am talking about moveable property from the point of view of section 17. If you are relying on consideration, the Revenue Commissioners are in the position that the taxpayer says the consideration is below £2,000. The same doubt can arise in the minds of the commissioners in relation to that as if it were in relation to gain. To put it in the vernacular, it is just as easy to fiddle it. They will have to do certain spot checks, but in so far as they will rely on what the taxpayer says, what is the difference between "gain" and "consideration"?
A gain cannot be spoken of in isolation. You could have an article sold for £5 and the taxpayer claiming there was a loss in relation to that transaction. In relation to nearly every transaction you would have to look at it——
I suggested that there was a fairly easy way around that. In regard to movable property could you not also provide that a loss of £500 would not be allowable——
A loss of more. There would still be the necessity to compute whether it was above or below the exempted figure. You are increasing the depleting need which would not be necessary at all if we were all completely frank with the Revenue Commissioners. Even if we were all capable, which we are not, of properly assessing our tax liability——
The Minister is talking about the difficulty of assessing ourselves. May I reserve that information to use against the Minister, as evidence against him, at a later stage? I am merely saying that in the case I might do it, not for political purposes.
I am on record as saying it.
The Minister is quite right. This is one of the difficulties in this problem.
That is why I have gone for simplicity. I have decided to take out of the net transactions where the consideration is clear and identifiable beyond dispute.
Why is consideration beyond dispute in the case of movable property if the gain is not? Surely either figure is just as easy to get around, either deliberately or by mistake.
No. The consideration is clear and I think both sides of the House agree on that.
Yes.
The element of gain is something which is in many cases very uncertain, involving further calculation.
Subtraction.
The only element of uncertainty is the face value. The face value must be looked into. The point I am making is that the assessment is a gain and the exemption is a market price level, but when the commissioners intervene the only thing they can be concerned with is gain. They can ask a simple question to satisfy themselves whether the transaction is at the market level, the Minister's level, of £2,000. I would go so far with the Minister as to say that if the commissioners are satisfied that if the market price did not exceed £2,000, that is the end of it, but if they are not satisfied then they will not assess on a market price. What they will have to assess is the gain— they will have to determine the basic point. They will have to assess the gain and then attach interest. This is the whole point I have been trying to adumbrate. When it comes to brass tacks I cannot see that there will be any greater simplicity for the commissioners in any case they go at because in satisfying themselves that the market price was down they would automatically find it necessary to get additional information unless they were blindly to accept receipts. Otherwise it will be on a spot check basis, with the commissioners using their experience, their intelligence and everything else. I do not want to be harrassing the Minister on this.
We do not want to create that kind of a problem, but in regard to the section 17 type of case, movable property, for the reasons I have outlined there is practically no real difference for the commissioners whether they work on consideration or gain. However, in relation to sections 26 and 27, where the details are known or, as the Minister said, will be furnished to the commissioners anyway quite irrespective of this Bill. surely the principle he has accepted in section 16 is applicable in those cases where the details will be known to the Revenue Commissioners? The argument in favour of going on the basis of consideration seems to be quite compelling. There is no argument of administrative convenience involved. The argument the Minister put forward was certainly for the taxpayer but if that is valid—it has a certain validity in theory although not in practice—why not apply it in section 16? Why not operate section 16 on the basis of a certain level of consideration?
I assume the section is drafted on the basis that it is meant to exclude small transactions because it would be impossible for the Revenue Commissioners if they were involved in all such transactions. That principle is acceptable all round but why do it on the basis of gain rather than of consideration in section 16? If there is validity in the argument of the Minister in relation to sections 26 and 27, section 16 should relate not to a gain of £500 per annum but to a particular level of consideration.
In relation to sections 26 and 27 and having regard to the availability of information to the Revenue Commissioners, I would ask the Minister why not operate on the basis of gain where the control that can be exercised with regard to exemption is much more precise? As I have indicated, in these cases people will be liable in some circumstances to a capital gains tax on a gain of £10,000 and will be exempt on a gain of £35,000. Surely that kind of anomaly should make the Minister think again whether it is justifiable in the case of sections 26 and 27 to work on the basis of consideration rather than gain. By operating on the basis of gain in those sections he can eliminate all these anomalies.
Section 16 is not exempting small transactions as such. It is granting relief to people who make a small profit from a small number of transactions. The exemption is not related to any specific transaction but it exempts all gains below £500 a year.
In practice the Minister will agree that it has the effect of excluding from consideration by the Revenue Commissioners many small transactions.
Yes. Section 17 relates only to chattels, to movable property. It does not relate to stocks and shares and items which could be exempt under section 16 so long as the total profits do not exceed £500 a year. Sections 26 and 27 have the effect of providing relief to particular categories of people whom we believe should be helped. For instance, a person getting out of a business or a farm will not have to pay on a threshold of £50,000 under section 26 and £150,000 under section 27. If the gain were looked at rather than the consideration then much more work would be involved but by clearly stating figures of £50,000 and £150,000 the matter is clear and beyond dispute and no further work is involved for the citizen or for the administration.
That is provided the figures are accepted.
Yes. In a straightforward case the price is agreed between both parties and that is the end of it. If we had a situation where we had to look to the gain, it would be necessary to investigate all transactions to ascertain whether a gain had been made and, if so, how much it was. According to an argument advanced by the Opposition, it could also operate in a way where it might be inappropriate to tax people where they had property for a long time and where, as a consequence, a considerable gain was involved. The exemptions we have given take account of the fact that people may have property that has been increased in value which they are passing to their family or which they are giving up on reaching retirement age. In sections 26 and 27 the circumstances are clearly identifiable. What matters is the value, rather than whether a gain has been made by the person. There is concern to give relief for family property situations and the relief given will relate to the circumstances. It is inappropriate to look into the gain in a case where a person is disposing of a farm or a business.
Presumably under section 27 the Revenue Commissioners will have to get involved in valuations in order to ascertain the consideration.
They may or may not, but valuing an asset with regard to its market value on a given date and a current date is much easier than endeavouring to get a valuation of property on an historic basis. Generally I am satisfied the sections do what they are intended to do, namely, give relief in the best possible way to people who might otherwise be called to pay capital gains tax.
I do not think the question of giving relief in these cases is affected in any way by these amendments because the relief can be given in relation to the gain. In effect, that is ultimately what the Minister is trying to do. However, for what he thinks is administrative convenience he is giving particular reliefs on a basis which relates to the consideration, whereas he is giving relief in section 16 on a basis related to the gain. Does the Minister think there is any validity in any of the points put forward from this side of the House that would be worth further examination?
Yes. There is a lot to be said on both sides but there is more to be said on this side. I would need to get evidence which has not yet been produced that it would be any simpler in operation. Both in theory and in the light of experience in Britain, I am afraid the argument put forward by the Opposition cannot be accepted.
I do not wish to pursue this matter interminably but in relation to section 17 I suggested that the kind of procedure the Revenue Commissioners would adopt would be the same whether the limitation was on the basis of consideration rather than of gain. Would the Minister have that examined a little further to see if what I have said is correct because I strongly suspect it is?
The Deputy can rest assured that everything argued will be very carefully weighed between now and the next Stage. If the weight of argument is in favour of amendment I shall bring in an amendment. I want good legislation, not a pyrrhic victory.
We do not want to protract the debate. If the Minister is not closing his mind to the points being made and will have them examined further, if he thinks there is some substance in them, we certainly do not want to pursue the matter further at this stage.
I shall certainly have a look at them.
Amendment, by leave, withdrawn.
I move amendment No. 20a:
In page 18, subsection (3), line 29, to delete "effect" and to substitute "affect".
The purpose of this amendment is to correct a printing error in line 1 of subsection (3). It is quite clear in the context of subsection (3), line 1, that the word "affect" is the correct word to use instead of "effect". It is a very common mistake.
It is. I must say I had not noticed the Minister's amendment but I had noticed the printing error.
Amendment agreed to.
Question proposed: "That section 17, as amended, stand part of the Bill."
In relation to sub-section (1) would the Minister say whether a mobile home would be regarded as tangible movable property?
It would depend how mobile it was.
The Revenue Commissioners have some experience of trying to determine the degree of mobility of these homes. It has relevance in another context.
The Valuation Office certainly have. The Deputy is no doubt familiar with the definition of wasting assets in paragraph 8 of Schedule I of the Bill. The particular mobile home could possibly be—it is a matter, of course, for the Revenue Commissioners to so regard it—a wasting asset if it has a predictable life of less than 50 years, but I would not like to pass comment on whether or not mobile homes have such a life span or an even greater one. It is very difficult to be any more explicit.
It is. I am not pressing the Minister on that.
I know of a mobile home purchased 47 years ago; it is a timber hut but it is mobile because it has been on three different sites. It is probably better than some now being manufactured.
And probably worth a great deal more.
Exactly.
I take it that the reference to a gain on disposable tangible movable property not being a chargeable gain if the amount of value or consideration for the disposal does not exceed £2,000 has the effect of excluding entirely any gain on such a transaction from being aggregated with a gain under section 16. That is the effect.
Yes.
In regard to sub-section (2) (a) the paragraph appears to be setting an amount of tax against an amount of consideration:
The amount of capital gains tax chargeable in respect of a gain accruing on a disposal falling within subsection (1) for a consideration the amount or value of which exceeds £2,000 shall not exceed half the difference between the amount of that consideration and £2,000.
I am not reopening the argument on the amendment but does it not appear to be somewhat illogical to be setting the tax against the consideration?
This is a subsection which gives marginal relief where the consideration exceeds £2,000. By providing that the amount of capital gains tax is not to exceed one-half of the difference between the amount of the consideration and £2,000, the tax with which the amount so calculated is to be compared is the tax which would not have been payable but for the particular gain; that is the difference in the amount between the capital gains tax which would be chargeable on all gains for the year, including that gain, and on all gains for the year, excluding that gain.
Is that in relation to (b)?
Yes.
I was about to ask the Minister to explain that and what he has told me does not get me any further.
Nothing helps to explain a thing better than an illustration.
Agreed.
Suppose a man buys a painting for £1,200 and sells it for £2,200, he has made a gain of £1,000 and the tax is £130 as follows: gain £1,000, exemption £500. There is therefore a charge on £500 at 26 per cent of £130. The tax is to be limited to half the difference between £2,200 and £2,100 and that would be £100, which is what the tax would be.
The tax is to be limited.
It is half the difference between £2,100 and £2,000. If the taxpayer had made a loss of £300 the computation would be a gain of £1,000 less £300. That leaves a net chargeable gain of £700. There is an exemption of £500 and the charge then is £200 at 26 per cent or £52. As this is less than £100 the marginal relief provision is not invoked.
What is the relief of £500 to which the Minister has referred?
That would be the exemption the taxpayer gets under section 16, the annual exemption.
I thought I had established that the effect of subsection (1) was to add to the exemption of £500 under section 16 the exemption under section 17 in regard to tangible, movable property. Now the Minister seems to be bringing it back in again.
No. We are dealing here with a transaction in respect of an article which has a consideration in excess of £2,000.
And is, therefore, outside the exemption in section 17 (1).
Yes. But, because the consideration is above £2,000, it does not enjoy the exemption.
(Dublin Central): If you purchase for £1,000 and sell for £2,000 you are exempt.
Yes.
(Dublin Central): If you purchase for £1,400 and sell for £2,100 are you caught then?
You would be caught but you get the market relief set out in subsection (2) (a).
(Dublin Central): You are caught for £500.
You are caught for half the difference between the £2,100 and the £2,000—that is to say £50.
The two sections, 16 and 17, are independent but in the aggregating of losses the one to apply is section 16. Is that the way I read the Minister's calculation?
I do not think that is correct.
Perhaps I misunderstood.
I want to suggest that the position is—perhaps the Minister will correct me if I am wrong—that in so far as a transaction is not exempt under section 17 because it is over £2,000, then section 16 comes in both for gain and loss.
Yes. The £500 comes in here.
I think I misstated my case.
I was calculating Deputy Fitzpatrick's sum. He said a gain of £700. There would be an exemption of £500 and therefore there would be a charge on £200 at 26 per cent which is £52. If the price is £100 over £2,100 it could not be above £50.
(Dublin Central): I misunderstood the Minister at the start.
I knew I had given the answer at £50 and I was worried that I had done a miscalculation.
I said I was going to ask the Minister the meaning of paragraph (b) of subsection (2) and I thought he was giving it. I believe he was referring to something else. Would he now explain the meaning of this paragraph and in particular how it is intended to operate it in practice?
The subsection states:
For the purpose of this subsection the capital gains tax chargeable in respect of the gain shall be the amount of tax which would not have been chargeable but for that gain.
The amount so calculated is the tax which would not have been payable but for the particular gain or the difference in the amount between the capital gains tax, which would be chargeable on all gains for the year, including that gain, and on all gains for the year, excluding that gain.
I hope that is clear to the Minister.
It takes some digesting all right and one has to read it again and again.
Would the Minister have any example to illustrate the point? I must confess I do not understand it.
Does it mean you calculate on a gain that would be there if the exemption for market value was not there? If the amount is over £2,000 you will have a capital gains tax calculated. I presume that is the gain referred to in subsection (b).
We will see how this works out. A gain on chattel, £400, other gains, £200, gains on other items in that year, £600. We will deduct £500 under section 16, which would leave a tax liability on £100 gain. That, taxable at 26 per cent, would create a tax liability of £26. If the top gain of £400, that is the gain on the chattel, were not included, there would be no tax liability because there would only be £200. Therefore, £26 is the tax attributable to the transaction. The £26 is attributable to the £400 chattel transaction under section 17. It is a concession to the taxpayer.
One would really want to know what gain the Minister is referring to in paragraph (b). Is there reference in the word "gain" to a gain in the case of the sale of a tangible movable property where the consideration exceeds £2,000? Is that the gain we are talking about?
Yes.
In such a gain what is being said, as I understand it, is even allowing for the exemption in section 16 of £500 the balance of the gain then is to get the benefit of the limitation in paragraph (a) which limits the tax not to exceed half the difference between the amount of the consideration and £2,000. Is that correct?
Yes.
Is that the effect of paragraph (b)?
Yes.
In other words, it makes the gain a taxable gain?
But it gives it the benefit of exemption in section 16.
And the benefit of the limitation in paragraph (a)?
Yes.
It is a peculiarly difficult piece of drafting.
The Minister might have it looked at.
I wonder whether we might make reference in the subsections themselves to section 16.
It must be possible to draft paragraph (b) in a way that would make a little more sense.
The Minister, Deputy Colley and myself have some little acquaintance with legal phraseology. The Minister will agree that this is a difficult piece of drafting to interpret.
Yes, I can see somebody making money out of writing a textbook.
Subsection (3) reads:
Subsections (1) and (2) shall not affect the amount of an allowable loss accruing on the disposal of an asset,
but it seems to me that the rest of sub-section (3) goes on to make it quite clear that they do affect an allowable loss because it says:
but for the purposes of computing under this Act the amount of a loss accruing on the disposal by an individual of tangible movable property the consideration for the disposal shall, if less than £2,000, be deemed to be £2,000 and the losses which are allowable losses shall be restricted accordingly.
Perhaps I am misreading this but if subsections (1) and (2) do not affect the allowable loss certainly the rest of the subsection does. Suppose subsections (1) and (2) were to affect the amount of an allowable loss what would be the effect of that? In other words, what is achieved by saying: "subsections (1) and (2) shall not affect the amount of an allowable loss"?
The purpose of sub-section (3) is to make a corresponding restriction in respect of loss relief as we have in subsection (2) by deeming the consideration on the disposal to be £2,000 if it is in fact less than that amount. Thus if an individual bought a chattel for £2,500 and sold it for £1,800 he would be allowed a loss of £500 and not £700. It is an obvious, indisputable principle that you cannot set off losses on articles or transactions if gains on those transactions or articles are not themselves liable to tax. In subsection (1) the gain in the case of a sale below £2,000 is not to be a chargeable gain. If this were not qualified there would be no allowable loss in the case of a sale below £2,000 on the principle in section 12 (2) that where a disposal does not involve a chargeable gain it could not involve an allowable loss. The opening words of the subsection, therefore, safeguard the right of a taxpayer to a loss, when the sale realises only £2,000 or less, and the rest of the subsection (3) restricts the loss in the way I have indicated.
In other words, where one sells at a loss and the actual selling consideration happens to be under £2,000 the Minister wants to ensure that the principle of section 16 should apply. Is that right? I am talking of principle.
No, we are dealing here more with the provision in section 12 which is the principle that one cannot set off a loss in a circumstance where such gain is not itself taxable. We are providing here that if the price realised is below £2,000 one will deduct from the calculated loss that portion which is below the £2,000. The case I illustrated was of the sale of an article which realised only £1,800 or £200 below the asset which originally cost £2,500. There is a market loss of £700 but for tax purposes the loss is deemed to be only £500.
On subsection (4) line 42 reads:
whether on the same or on different occasions,
Is it envisaged that there will be any time limit as between the two occasions or could it be that one transaction might take place now and another transaction in, say, another 20 or 30 years and that they would then be different occasions?
Each case would have to be considered on its own merits. It is very difficult to say with certainty what would be the appropriate time span which would not be taken into account by the Revenue Commissioners as part and parcel of the one transaction. For example, there might be the disposal of a stamp collection piecemeal. It could be a genuine disposal over a number of years and quite a number of people would be acquiring and disposing of such an article. The problem there would be to determine whether or not there is a sensible disposal of a significant amount which creates a tax liability or whether each transaction is so separate from the others as to constitute separate transactions.
It is clearly beyond the capacity of the legislature to spell out the precise circumstances in which separate transactions, on the face of it, might constitute one transaction, and it will have to be left to the ordinary practices of the market place and the common sense of the Revenue Commissioners to work out what the situation really is. The subsection is necessary to prevent abuse of the section by the disposal of an asset in separate parts to persons who work in association with one another so that the amount of consideration for each part is below £2,000 while the total realised on the set of articles is above the figure.
The subsection enables different transactions to be treated as a single transaction even where the disposals occur on different occasions. Any apportionment of relief under sub-section (2) or reduced loss under sub-section (3) is to be made to the different years of disposal by reference to the sale proceeds applicable to each year.
The subsection is to apply to disposals made between the date of issue of the White Paper and before 6th April, 1974, to counter the possibility that the announcement that a capital gains tax would be introduced with effect from 6th April, 1974, might have induced some persons to sell off collections of valuable articles and other sets of valuables before that date.
This measure does not however impose liability on transactions concluded before 6th April, 1974. It merely restricts relief from tax on parts of collections or sets of articles disposed of on or after 6th April, 1974, by bringing into account in applying the £2,000 limit the value of assets disposed of between 28th February, 1974, and 6th April, 1974.
I appreciate the problem that arises in trying to provide for a series of transactions which are in effect one transaction, but would the Minister agree that the wording "on different occasions" leaves it open to have no time limit between the transactions in question in certain circumstances—that that interpretation is possible?
Yes, but of course the Revenue Commissioners will be looking not merely to the time span but to whether or not there is a connection between the person disposing of the assets and the person acquiring the assets. The connected person is an essential part of this.
Yes. That brings me to the next point. A disposes of the first article to B. Then he wants to dispose of the second one of the series to B but, instead, he disposes of it without gain or loss to C, who in turn disposes of it to B, by arrangement of course with A. Presumably in that way he is going to evade the liability that is sought to be imposed in this subsection.
The illustration the Deputy gives seems to be an illustration of persons who are acting in concert with one another. A, B and C would be in concert with one another. I cannot see how the device which the Deputy has in mind would avoid liability.
There is no limit to how far that acting in concert could extend. I mean, in theory?
In theory, no. All the world are my friends, I suppose. There is no limitation. All mankind are my friends. There is no limitation.
If I may read a couple of lines of subsection (4), there is a query that I want to put to the Minister in regard to that portion which reads:
. . . whether on the same or different occasions the two or more transactions shall be treated as a single transaction disposing of a single asset but with any necessary apportionments of the reduction in tax . . .
It is that part that I am concerned with at the moment——
with any necessary apportionments of the reduction in tax. . . .
I want to know if the effect of that is that if, say, two transactions took place but were deemed to have been one transaction, in that case if the consideration did not exceed £4,000 there would be no tax payable and, if it did exceed £4,000, it would get the benefit of the graduated provisions of subsection (2) limiting it to half the difference between the consideration and £4,000, or am I misreading it?
No. Two thousand pounds is the ceiling of exemption under section 17. The Deputy's question is whether or not if the two transactions constitute one with a value of £4,000 it is to be deemed only to be £2,000.
What is the meaning of the phrase "with any necessary apportionments of the reduction in tax"?
There could be marginal reliefs which are set out in sub-section (2).
Yes. This is what I am coming at. As far as I can see, the marginal reliefs in subsection (2) refer back to subsection (1). Subsection (1) refers to tangible movable property where the value of the consideration does not exceed £2,000. Subsection (2) says "the amount of capital gains tax chargeable in respect of a gain accruing on a disposal falling within subsection (1) for a consideration that amount or value of which exceeds £2,000. . .". What kind of transaction is envisaged there? Presumably, it is the sale of tangible movable property where the consideration exceeds £2,000 that we are talking about in subsection (2). We then apply the relief involved where two transactions are, in fact, deemed to be one transaction under subsection (4). Is the effect of that phrase, "with any necessary apportionments of reduction in tax", that the marginal relief for a transaction involving the sale of movable property above £2,000 provided for in subsection (2) would be applied to this transaction being deemed to be one transaction? Is that what is intended?
Yes.
Then, how does the apportionment of this reduction arise?
The apportionment between the years?
Yes, between the years or between the transactions, if you like. You could have two transactions in the one year which are deemed to be one transaction.
It would be transactions in that case.
If there are two transactions in the one year which are, in fact, deemed to be one transaction, does any question of apportionment arise then? It is the use of the word "apportionment" that I am trying to get to the root of. What is the effect of this?
There could be circumstances in which the apportionment could arise in one year but if it does not arise then the particular sentence is irrelevant to the circumstances but if, on the other hand, the different parts of the transaction occurred in different years then the apportionment would be relevant and these particular words would apply.
They would apply only where the transactions were in different years?
Not necessarily. There could be some apportionment if they occurred in the one year. I will try to think out a sample as an illustration for the Deputy.
I appreciate that. When we resume the Minister may be able to give us an example. I should also like him to give us an example of the operation of the portion of the sub-section which reads:
. . . and one of them falls after the 28th day of February, 1974, but before the 6th day of April, 1974, but not so as to make any gain accruing on a disposal before the 6th day of April, 1974, a chargeable gain.
I know the Minister referred to this but an example would make it a good deal clearer if he could give one.
I certainly will. I think I have already explained to the Deputy the reason for the dates in question.
I understand the reason. I want to see how it actually works.
Progress reported; Committee to sit again.