Dáil Éireann debate -
Thursday, 22 May 1975

Vol. 281 No. 3

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

Debate resumed on amendment No. 28:

In subsection (6), page 26, line 28, after "individual" to add "provided always that the period of ten years aforesaid may by decision in writing of the Revenue Commissioners be reduced by such period as to the Revenue Commissioners seems just where the individual has been prevented by ill-health from working as a full-time director for the said period of ten years or where the individual concerned is the widow or widower of the next preceding owner and is unable to carry on the trade, business, farming, office, employment or profession of his or her former spouse.

(Deputy Colley.)

Mr. Colley

Before we adjourned last night I had outlined the purpose of this amendment, the purpose being to ensure that the relief proposed in section 26 in the case of a disposal by a family of a firm or business on retirement would be available to two categories of persons who seem to me to be excluded by the section. One category is a person who has been engaged full-time in business and, as a result of illness, has to give up the full-time occupation and, because of his absence from the business, is forced to dispose of the business. In such circumstances a man should be entitled to the relief proposed in the section. The other category is where a farmer was full-time or a director of a family business died and his widow endeavoured to carry on the business but found herself unable to do so; she also should get the benefit of the proposed relief.

The Minister said last night that he believed the relief in fact would be given to the widow. On the basis he put forward for that I still have doubt as to whether the Bill would give such relief. If it would I would, of course, welcome it but I do not think on its face that it does. I would expect therefore that the Minister would be disposed either to accept this amendment or introduce his own amendment to make certain such relief would be available to a widow in those curcumstances.

In regard to the other category, the man who because of illness finds himself not qualified for the relief, the Minister indicated he could not accept the amendment because of difficulties involved for the Revenue Commissioners in determining the nature of the illness and various other factors. The amendment is designed to give the relief in the cases I have mentioned when the Revenue Commissioners decide it is just that it should be given. The categories concerned are specified. There is provision where the Revenue Commissioners consider it just to reduce the period of ten years stipulated in the section. There could therefore be no question of arguing that this amendment would be open to abuse because the control would be entirely in the hands of the Revenue Commissioners. The Minister is mistaken in saying that the problems presented to the Revenue Commissioners would be such that they would not be in a position to handle them because of difficulty in deciding on medical certificates the degree of illness involved and whether it was such as to have caused the individual to give up his full-time work. At the moment the Revenue Commissioners are obliged in the case of people claiming special income tax allowances in respect of health expenditure to make decisions of this kind so that it is not a new prospect for the Revenue Commissioners. I do not think there is any major problem involved but I think the categories I have described are such as to require, and to be in all equity entitled to the relief. The Minister and the House have an obligation to ensure that such persons get the relief. I am not saying this situation will arise in every case but I believe it is one which can arise in quite a number of cases and that failure to provide for these cases would be a very serious defect in the relief which it is purported to give under section 26.

A way of giving the relief must be found. The way I have suggested ensures that there cannot be any abuse of this. I urge the Minister very strongly to accept this amendment or alternatively put forward his own. In that connection I should say I referred to these matters on the Second Stage debate and my recollection is that in replying the Minister said he would consider the points raised in this connection and if necessary bring in an amendment. Since he did not do so I am afraid the indications are that he does not intend to provide relief in cases of this kind, particularly the case of the person compelled by ill-health to give up either his farming or his business.

I regard that as a very grave omission from the Bill and one which would create considerable hardship, which is not justified simply on the grounds of difficulty of administration, or because of risk of abuse of the relief. When it is totally in the hands of the discretion of the Revenue Commissioners it cannot be reasonably argued that it is open to abuse of that kind. The sole reason advanced against giving the relief was the difficulty of administration that would arise for the Revenue Commissioners. I do not believe that is a sufficiently good reason to deny this necessary relief in cases of the kind I have outlined nor do I believe that the difficulties are such that they would prove insurmountable to the Revenue Commissioners. As I have indicated they are already handling problems of this kind. Even if they were not I do not accept they could not handle a problem of this kind.

I want to urge the Minister very strongly again not to allow the kind of difficulties he envisages to stand in the way of giving the relief in cases where I am sure he agrees the relief should be given. There may be a stronger case for giving the relief in the kind of case I mentioned than in the straightforward case envisaged in the section. The section envisages giving the relief where a man retires from farming or business. He may retire in the full of his health and he may engage in some other occupation afterwards. The kind of case I am trying to cover in this amendment is where a man is obliged by ill-health to retire and almost certainly he will be totally dependent on the proceeds of the sale of his business and will not have any opportunity of earning a living, so the necessity for giving this kind of relief in these cases is even greater than it is in those where it is proposed to give the relief in the section. For all of these reasons I urge the Minister very strongly to accept this amendment or if he cannot do that at the very least to accept the principle of it and undertake to introduce his own amendment to achieve the same purpose.

Minister for Finance (Mr. R. Ryan)

The reason why I am not disposed to accept the amendment is because I am satisfied that the Bill and the interpretation of it by the Revenue Commissioners will ensure that circumstances such as Deputy Colley outlines will not disqualify a person from the relief which it is proposed to give provided that person has been involved in the business for ten years prior to the date of disposal.

I am not aware, and I do not think anybody else is aware, of any case under existing law where full-time occupation was necessary, where the Revenue Commissioners refused whatever entitlement a person was entitled to by reason of fulltime occupation simply because of a person's absence from business because of ill-health. The test is not whether or not a person is devoting the full working hours to a particular business but whether or not he is substantially involved in running some other business or activity to such an extent as not to be adequately involved in the business concerned.

There are innumerable cases, as we all know, where people can be absent from a business for days, weeks, months and indeed years, but it has never been held against them that illness disqualifies them from being substantially or fully involved in the business. If such a person was substantially involved in the running of another business in such a way as to be clearly unable to give adequate attention to the business which came under scrutiny by the Revenue Commissioners then a different case would arise. The Deputy may be assured that the fears he has would not in the event materialise because the Revenue Commissioners would not interpret the section in the harsh way he feels they might simply because of the obligation to be involved in the running of the business.

As far as the widow is concerned, as I said last night, the Revenue Commissioners have already informed me, and I am informing the Dáil, that they will interpret the section as meaning that there is continuity and will count the deceased husband's ownership and hers as one ownership. The Revenue Commissioners have never gone back on any assurance which has been given in their name to Oireachtas Éireann regarding their understanding of a Bill and the way in which they would interpret it. The Deputy will recall, when he had Ministerial responsibility, he had to give assurances of a similar kind and they never have been dishonoured.

I will, however, give attention to the possibility of writing in something of this kind but, as I mentioned last night, I am loathe to write in a specific reference to the continuation of ownership between husband and wife in one section without looking to every other section of the Bill and indeed the whole schedule to see if by including it in one it might be deemed we intended to omit it in another. I believe we are on much safer ground to proceed in the light of the indications that have already been given in regard to the way this section will be interpreted by the Revenue Commissioners, who are the people, who under the law, will be charged with its operation.

Mr. Colley

I think it is clear, from what the Minister said, that he agrees with the purpose of the amendment because he said that the Bill already provides for the cases envisaged in the amendment. There is no argument between us on the desirability of this. As regards the case of the widow I am familiar with the situation in which the Minister for Finance of the day gives an assurance in the House as to the way in which the Revenue Commissioners intend to operate a particular section of a Bill.

As the Minister says, I know of no case where such an undertaking has been dishonoured. Nevertheless I do not think I know of any case either where the suggested interpretation of the Bill by the Revenue Commissioners seems to be so far removed from what the Bill actually says. That is the reason for my concern in the case of the widow. However, the Minister has said that he will have it looked at in order to ensure that this matter is made clear and certain in the Bill.

In regard to the other case, again, while I understand the point the Minister is making, I am not sure that this is sufficient. If I understand him correctly he is saying that because the section requires ten years prior to the disposal as a full-time director if such a director is ill, let us say for two years of the ten years, the Revenue Commissioners will say that the fact that he is ill does not mean that that is the end of the matter, he was not ten years full time as a director. However, the situation can be a little more complex than that. For instance, if as a result of the illness going on for a considerable time and medical advice that the man will be unable to work again, say if he were to get the benefit of some superannuation or retirement scheme or insurance policy which would indicate that he was no longer in full time work and would not be in future, in those circumstances would the Revenue Commissioners still interpret his position as being a full-time director? The situation I have outlined is not an unusual one.

Mr. R. Ryan

If the person was in receipt of some insurance benefit because of inability to pursue his employment, and it is quite a frequent form of insurance that is usually related to the possibility of return to the business, in such circumstances it would be deemed that there was always that possibility. It is said rightly that doctors differ and patients die. It can be said with equal truth that doctors differ and patients live. I, and I am sure other Members of the House, know of cases where doctors even certified people as unfit subjects for insurance because of an anticipated short life span and the doctors themselves went to earlier deaths than the people in respect of whom they refused to issue certificates which would establish their long expectation of life. The area of health certification is uncertain, to say the least, and that is not casting any aspersions on the integrity or the ability of doctors, but the way in which the human body works and survives both illness and handicaps is imperfect of accurate forecasting and of certification.

The cases which Deputy Colley has in mind of the existing law where health falls to be considered are very limited and are more after the event than before it. For instance, under the income tax code there is an allowance where a person's medical expenses exceed a certain figure in any year, provided the expenses have arisen in respect of some disease or ailment which could not be insured against. There it is a question of establishing that the expenses have been incurred and the expenses must be incurred on the prescription of a doctor. The kind of certification which would be required if the Deputy's amendment was to be recorded in the law would involve assessments by doctors as to the probable effects on people of remaining at work and those assessments could be open to quite an amount of miscalculation, to say the least of it. Many a person was advised by his doctor to give up work and, as a consequence of giving up work, died sooner than if he had remained at work because a person can become a hypochondriac as a result of having more time to worry about himself than if he engaged in work. Some of the people who lived longest were those who remained working right to the very end, even to a hoary old age. The Deputy will see that there is a great deal of difficulty involved in endeavouring to apply what he seeks to have considered and I am satisfied that the Bill, as drafted, and as it will be worked by the Revenue Commissioners, will ensure that the kind of case which he has in mind will be attended to.

May I offer this point, more as a point of substance than as a debating point? The Bill refers to the fact that a director must "devote substantially the whole of his time". The whole of a person's time has never been defined statutorily. It means literally 24 hours a day but nobody has ever assumed that the Revenue Commissioners would so unreasonably interpret such similar reference in other Bills. As far as the health aspect is concerned the way the Revenue Commissioners would read that is the whole of his available time, that is, such time as he was able to put at the disposal of the business having regard to his state of health. If he does not devote the whole of his time because of the fact that he devotes part of his working time to some other business then the right to avail of this section would accordingly be removed. I think that is reasonable.

Mr. Colley

Correct.

Mr. R. Ryan

But if a person is making available the whole of his available time, as his health permits, then such a person would not be denied the benefit of the subsection.

Mr. Colley

I suggest that the Minister is getting involved unnecessarily in the question of medical certificates, their accuracy, the differing views that may be expressed by competent doctors on the same patient. That is not really what we are concerned with here, I suggest. What we are concerned with is how the Revenue Commissioners would interpret the section and how much discretion and latitude the Revenue Commissioners have in interpreting the section. I would suggest that under the section as drafted they do not have a latitude sufficiently wide to enable them, in the case of a full-time director who by reason of ill health retires completely and perhaps draws insurance benefit based on total incapacity, to exercise the kind of discretion the Minister proposes that they will exercise. That kind of discretion could only be given by something on the lines of this amendment, and it does not matter what their intentions are or how the Minister puts on the record what their intentions are. They cannot go outside the terms of the section as passed by the House. The real question, therefore, is what power are we giving the Revenue Commissioners in cases of this kind. I would assume that where there is a medical certificate received in such a case by the Revenue Commissioners from a qualified doctor, where they have no reason to doubt it, they would accept it on its face. It would be only in a small number of cases that they would have any reason to doubt this. In such cases where they have reason to doubt, of course, they would have to check up and this amendment would allow them, if they wanted to, to do so and then make up their minds as to whether the relief would be given or not in a particular case. That, I suggest, would not be in any except a small minority of the kind of cases we are talking about. In the great majority of cases there would be no problem for the Revenue Commissioners of interpreting or checking up on medical certificates.

I would again suggest that that is going away from the real point with which we are concerned here, namely, have the Revenue Commissioners the right under the section as drafted to allow the relief proposed under this section to a man who is in the position that as a result of illness and perhaps, as I said, of his drawing insurance benefit as being totally disabled, he retires from the position of full-time director and is not therefore able to establish that he has been a full-time director for the ten years prior to the disposal as required by the section? That is the kernel of the problem.

The Minister is saying that in cases of this kind the Revenue Commissioners will interpret the situation as showing that the man was a full-time director for ten years because they would not regard his absence due to illness as meaning that he was not a full-time director. I accept that that is so, but I cannot accept that where a man is clearly and demonstrably retired from the position because of illness they could so interpret, whatever their intentions might be. I do not think that they are given the power to do that in the section. That is really what this amendment is all about, to give them the power to do that, whatever they may intend to do. I would feel very strongly that we should make certain that they have the power to do what the Minister says they intend to do and what both sides of the House want them to do in circumstances of this kind.

Mr. R. Ryan

I am satisfied that the sections will come to the relief of the people the Deputy has in mind, and I think it is better to leave it the way it is rather than to meddle around with it in a way which would probably force the Revenue Commissioners to make more detailed inquiry regarding every case than it is their practice to do. Under existing law, from time to time they have to assess whether or not a person is a whole-time director. They do not go around looking for time sheets——

Mr. Colley

I agree.

Mr. R. Ryan

——to see whether a person has been occupying a chair for X hours per year and, as men of the world, they are aware of cases where because of serious illness like cancer or something of that kind a director has not been in useful involvement in business but they have not in the past and would not in future proceed harshly to rule out such people, nor do they go to see whether or not the person prudently insured against absence or against a fall in income in respect of absence from business arising out of genuine illness.

If we proceed to try to deal with every one of these situations by producing amendments to the Bill the truth is that we will provide the right recipe of relief for some people and as a consequence rule out others who, under the existing practical and sympathetic way in which the law is applied are in.

Quite sincerely, I would urge upon the Deputy that what he seeks to attain is best attained under the Bill as drafted and as it would be interpreted by the Revenue Commissioners, and that while his intention is good he might well defeat that good intention by putting the Revenue Commissioners into the position of having to probe the most intimate details of a person's medical history and attendance at business and that this would operate against the best interests of the majority of people who would benefit under the system that is proposed, which is not dissimilar to that which operates at present under the income tax laws.

Mr. Colley

Although I accept that the Minister's intentions are good in this, the Bill, unfortunately, does not do what he wants to do and what he wants the Revenue Commissioners to be able to do. I do not think there is any point in going back over the arguments again. We have each put the relevant points, but I am not satisfied that the section does not give power to do what I want it to do and what I think the Minister wants it to do.

Amendment put.

The Committee divided: Tá, 34 Níl 40.

Tá

• Andrews, David.
• Barrett, Sylvester.
• Brady, Philip A.
• Breslin, Cormac.
• Brosnan, Seán.
• Browne, Seán.
• Callanan, John.
• Calleary, Seán.
• Colley, George.
• Connolly, Gerard.
• Crowley, Flor.
• Daly, Brendan.
• Davern, Noel.
• Dowling, Joe.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• Flanagan, Seán.
• French, Seán.
• Haughey, Charles.
• Healy, Augustine A.
• Herbert, Michael.
• Hussey, Thomas.
• Lalor, Patrick J.
• Lynch, Jack.
• McEllistrim, Thomas.
• MacSharry, Ray.
• Meaney, Tom.
• Moore, Seán.
• O'Connor, Timothy.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Timmons, Eugene.

Níl

• Barry, Peter.
• Barry, Richard.
• Begley, Michael.
• Burke, Dick.
• Burke, Liam.
• Collins, Edward.
• Coogan, Fintan.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Crotty, Kieran.
• Desmond, Barry.
• Desmond, Eileen.
• Dockrell, Maurice.
• Donnellan, John.
• Dunne, Thomas.
• Esmonde, John G.
• Finn, Martin.
• Fitzpatrick, Tom (Cavan).
• Gilhawley, Eugene.
• Governey, Desmond.
• Griffin, Brendan.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Kyne, Thomas A.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McLaughlin, Joseph.
• McMahon, Larry.
• Malone, Patrick.
• Reynolds, Patrick J.
• Ryan, John J.
• Ryan, Richie.
• Spring, Dan.
• Staunton, Myles.
• Taylor, Frank.
• Thornley, David.
• Timmins, Godfrey.
• Toal, Brendan.
• Tully, James.

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

Amendment declared lost.

Question proposed: "That section 26 stand part of the Bill."

Mr. Colley

There are a number of the provisions in this section which I think require explanation. I wonder would the Minister care to give an outline of the section?

Mr. R. Ryan

This section provides for relief from capital gains tax in the case of an individual who disposes of his business or farm or shares in his family company, on his retirement at the age of 55 years or more. To qualify the individual must have owned the assets for at least ten years and where the disposal is of shares of his family company, he must have been a full-time working director of the company throughout the ten years. If the disposal is for not more than £50,000, all the gains will be relieved. If the disposal is for more than £50,000, there is marginal relief to ensure that the tax is restricted to half the difference between the consideration and £50,000. The relief is limited in the case of one individual, however many farms or businesses he disposes of, to an aggregate consideration of £50,000. Does the Deputy wish me to go through the various subsections?

Mr. Colley

I am particularly concerned with subsection 1 (ii) paragraph (b) and also subsections 4 and 5.

Mr. R. Ryan

Subsection 1 provides the relief for an individual who has attained the age of 55 years and who disposes of the whole or part of his qualifying assets as defined in subsection 6 (a). The measure of relief is the full amount of capital gains tax where the amount or value of the consideration for the disposal does not exceed £50,000. Marginal relief is provided where the amount or value of the consideration exceeds £50,000 to the extent that the amount of capital gains tax chargeable will not exceed half the difference between the consideration and £50,000. For example, on disposal £52,000; gain £10,000; tax to be charged at 26 per cent, £2,600 but marginal relief would limit the tax to £1,000. Subsection (1) (b) means that in applying the marginal relief, the amount of half the difference between £50,000 and the consideration received is to be compared with the tax which would not have been chargeable but for the gain on the farm or business. That amount of tax is the difference between the capital gains tax which would have been chargeable on all the gains for the year, including the farm or business, and on the gains, excluding the farm or business.

Mr. Colley

The Minister will probably recognise that paragraph (b) of subsection (1) (ii) is similar to another paragraph with which we were concerned last night. We agreed then that it presented difficulties of interpretation. Perhaps the same can be said for this part of the section and the Minister might look at it with a view to redrafting and making the meaning clearer. It is in similar circumstances to marginal relief.

Mr. R. Ryan

There are many of these things that could be made clearer by examples. No doubt the text book writers will not be slow about producing examples but it is a difficult thing in a piece of legislation to produce an example. I can give the House an example now if people want to use the record as the initial text book.

Mr. Colley

If one has to fall back on that one will have to do so but it should be possible to draft it in such a way to make the meaning clearer than it is at present. The difficulty arises for the same reason that it arose in the other case because it is dealing with marginal relief and the same formula of words is used.

Mr. R. Ryan

I agree it is not easy to follow until one has an illustration. Subsection (4) is an anti-avoidance measure aimed at ensuring the limitation of the relief to an individual during his lifetime to an aggregate consideration of £50,000. Thus, disposals will be accumulated and relief for any year will be computed as if disposals for that year and all previous years had been made in the year under review, and for this purpose a part disposal by a husband to a wife or vice versa is taken into account at market value and section 13 (5) does not apply to such a disposal which otherwise pursuant to section 13 (5) would be treated as a disposal on a no-profit no-loss basis.

Subsection (5) provides for the application of subsection (1) to capital distributions received in the course of dissolving or winding up a family company and for this purpose the individual is treated as if he had disposed of interests in shares or securities so as to qualify for relief under subsection (3).

Mr. Colley

What is the effect of the exclusion of the provisions of section 13 (5) as provided for under subsection (4) of this section?

Mr. R. Ryan

The provision is to prevent an abuse of the section by transfer taking place between husband and wife.

Mr. Colley

Could the Minister elaborate on that?

Mr. R. Ryan

If the Deputy looks at subsection (5) of section 13 he will see that it states:

Where in any year of assessment in which, or in part of which, the married woman is a married woman living with her husband, the husband disposes of an asset to the wife, or the wife disposes of an asset to the husband, both shall be treated as if the asset was acquired from the one making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the one making the disposal:

Provided that this subsection shall not apply if, until the disposal, the asset formed part of trading stock of a trade carried on by the one making the disposal, or if the asset is acquired as trading stock for the purposes of a trade carried on by the one acquiring the asset.

(6) Subsection (5) shall have effect notwithstanding the provisions of paragraph 15 of Schedule 1 or of any other provisions of this Act fixing the amount of the consideration deemed to be given on a disposal or acquisition.

Mr. Colley

How can the abuse arise of the provisions of this section if section 13 (5) were to operate?

Mr. R. Ryan

We could have a situation where a husband might give £50,000 worth of property to his wife and under section 13 would not be charged. Then there could be a sale of £50,000 worth of property which it might be claimed qualified for the relief.

Mr. Colley

Would that not be regarded as a disposal within the family under section 27 in so far as it is regarded as a disposal at all between the husband and wife?

Mr. R. Ryan

I am not certain what the Deputy's question is.

Mr. Colley

Is the Minister saying that without this provision and if one were to allow section 13 (5) to operate this relief could be abused by the husband transferring the property to the wife and getting the relief provided for in this section? I understood the Minister to say that was the purpose of section 4 of this section.

Mr. R. Ryan

This £50,000 in section 26 is a special exemption which applies outside the family. Section 27 deals with the case of a family business. Section 13 deals with transfers between husband and wife and we are ensuring here that a total disposal which is governed by section 13 (5) would not come within the ambit of section 26. One is a case outside the family and the other is a case within the family.

Mr. Colley

How can a disposal under section 13 (5) come within the ambit of this section since it is provided in section 13 (5) that such a disposal would be deemed to be at a value which creates no gain and no loss? Therefore, no question of liability for tax arises on a disposal under section 13 (5).

Mr. R. Ryan

Paragraph 4 (c) of this section states:

For the purposes of this subsection, a disposal of qualifying assets other than a disposal of the whole of such assets, by a husband to a wife or by a wife to a husband shall, notwithstanding the provisions of section 13 (5), be taken into account at the market value of the assets.

Under section 13 (5) a husband can transfer anything to his wife at any time without liability.

Mr. Colley

If he can transfer without liability under section 13 (5) how could the question of relief as provided for in this section arise, since there is no liability on a transfer between a husband and wife?

Mr. R. Ryan

Subsection (4) provides that a man cannot transfer to his wife freely, then let the wife dispose of it and get the benefit of the £50,000 relief because, if that were permitted, they would get relief on £100,000. There can be the one £50,000 only; there cannot be double relief.

Mr. Colley

Paragraph (c) of subsection (4) provides for that.

Mr. R. Ryan

Yes.

Mr. Colley

Paragraph (c) seems to me to remove the benefit of section 13, subsection (5) from a transaction between a husband and wife.

Mr. R. Ryan

No, it ensures that there cannot be double relief, that one cannot have relief on £100,000. There will still be the relief on £50,000 but one cannot get it on the double.

Mr. Colley

I accept that that is the intention but I wonder if that is what it is doing.

Mr. R. Ryan

A man cannot transfer say, £50,000 today, then tomorrow sell off £50,000 of his own, the wife sell off £50,000 and get £100,000 relief.

Mr. Colley

Supposing the man transfers to the wife, once he has transferred it, how can she get the benefit of the relief under this section, because she would not qualify under the other provisions of the section; for instance, she would not have been ten years; that is one of the qualifications.

Mr. R. Ryan

She could eventually be in ten years, herself, in her own right. This comes back again to the fundamental concept that is, that husband and wife are so closely linked together for property-holding purposes, we want to ensure that if the favourable treatment which is enjoyed under section 13, subsection (5) is availed of, that that and this particular section cannot be availed of on the double so that one got relief on £100,000.

Mr. Colley

Yes, but this paragraph seems to say:

(c) For the purposes of this subsection, a disposal of qualifying assets other than a disposal of the whole of such assets, by a husband to a wife or by a wife to a husband shall, notwithstanding the provisions of section 13 (5), be taken into account at the market value of the assets.

The qualifying assets are defined in the section. How does one decide whether a transaction is one that comes within the ambit of paragraph (c) or within the ambit of section 13 (5)?

Mr. R. Ryan

Any disposal would come within the meaning of section 13 (5).

Mr. Colley

Yes, any disposal would.

Mr. R. Ryan

Yes, by husband to wife, which would be governed by section 13 (5). This provision is simply to say that benefit having been obtained under section 13 (5), there will not be this dual benefit, as it were, by applying section 26 to such a disposal.

Mr. Colley

But that is not what it says. What it says is that notwithstanding the provisions of section 13 (5) a disposal of part of the qualifying assets between a husband and a wife would be taken into account at market value. It does not say: a transaction having benefited from section 13 (5). Does the Minister see my point?

Mr. R. Ryan

That is market value for the deduction of £50,000.

Mr. Colley

It does not seem to me, on the face of it, that it is clear which provision—either subsection (4) (c) of this section or section 13, subsection (5)—would be applied to a particular transaction. As I understand it, the Minister is saying that if section 13 (5) has been applied, then this section will not be applied. But that does not seem to be what the paragraph is saying. It seems to be saying: despite section 13 (5), those provisions will not be applied where there is disposal between a husband and wife of part of qualifying assets, which is not the same thing as the Minister indicated was the intention.

Mr. R. Ryan

I shall have to look further into this. I know what is the intention but I can see that there is some room for doubt as to whether the paragraph achieves it.

Mr. Colley

I think there is.

Mr. R. Ryan

Certainly, the intention is to prevent splitting, which would allow a couple to get exemption on £100,000 instead of limiting it to £50,000. I will certainly examine it and, if necessary, bring in an amendment on Report Stage to clarify it.

Mr. Colley

When looking at this, would the Minister bear in mind that the provisions of section 13 (5), if applied to the transaction between the husband and the wife, is one thing. But, as I understand it, what he is getting at is that a subsequent disposal by the husband or the wife would not get the benefit of this section—that in fact there are two transactions involved, not just one. I think that would need to be made clear in any clarification of this paragraph.

Mr. R. Ryan

I will take note of that.

Mr. Colley

I presume the Minister is familiar with but I should like to get his comments on the statement in the Newsletter of The Confederation of Irish Industry relating to this section which reads as follows:

The Confederation considers that the amount of £50,000 should be increased to £150,000, as the figure of £50,000 is far too small to provide any satisfactory measure of relief for business. When applied to manufacturing firms the proposals will have the effect of taking capital out of productive industry. Since the Government must still rely for 60 per cent of its job creation targets on new foreign industry, the Confederation strongly urges that investment in Irish manufacturing industry by directors or executives of the company should be exempted. Relaxation of the statutory requirements where there are cases of hardship due to ill-health, et cetera should also be introduced.

We have been dealing with the latter point on the amendment.

Mr. R. Ryan

Capital gains tax will not apply until a person is disposing of his interest in whatever assets he possesses. In relation to what the Deputy has said, it would not apply to industrial assets until the person was disposing of them. Therefore, if the Bill has any effect, it should operate to encourage people to leave their assets in industry rather than dispose of them and, by so doing, become subject to the tax.

Mr. Colley

That is partially true only. I would suggest, that the disposal of a particular asset may, when subjected to the tax, in fact have the effect of what the confederation says, of taking capital out of productive industry. The Minister may say that a disposal of that kind, where it is proposed to re-invest the proceeds, is in fact exempted and gets the benefit of roll-over relief. I do not want to go into this matter at the moment because later we will be discussing the precise benefits of the proposed relief, but even leaving that argument aside is it not possible that in some circumstances the effect of the tax on disposal of assets in productive use at the moment would produce the imposition of capital gains tax at 26 per cent and, to that extent, it could take that much money out of productive investment when we most need it?

Mr. R. Ryan

The Deputy has anticipated my remarks. I am satisfied that whatever else it does it does not take money out of industry. It is an encouragement to keep it there, either by not disposing of it or by rolling it over if there is a disposal.

Mr. Colley

Has the Minister received any representations, in particular from the various accountancy bodies, in regard to the definition of "family company" in subsection (6) (a)? If so, will he state his attitude to such representations?

Mr. R. Ryan

I cannot say offhand if such representations were received.

Mr. Colley

I am in a slight difficulty because I cannot put my hands on them at the moment but presumably this matter can be dealt with on the next Stage if that is necessary. I will not hold up the Minister on that point. I understand also that the Minister has received representations in regard to the definition of "full-time" working director" in subsection (6) (b). Has he any information on that and on his attitude to the representations made to him?

Mr. R. Ryan

I dealt fairly extensively with the question of definition and interpretation of "full-time working director" earlier this morning. In relation to a company, a "full-time working director" is defined as a director who is required to devote substantially the whole of his time to the service of the company in a managerial or technical capacity. Where an individual is required to devote substantially the whole of his time to the service in a managerial or technical capacity in more than one company, and the company is constituted a group of companies, or carries on complementary businesses so as to form a composite unit of the business, on the disposal by way of sale or gift of the whole of his shares in all the companies, he may by concession be regarded as a full-time working director of any of the companies which, in relation to him, is a family company. Some representations were made on this issue but I am satisfied the way in which this will operate will ensure that people who are involved in more than one company in the group will enjoy the relief the section seeks to confer on them.

Mr. Colley

Is the Minister satisfied that the ten-year period is necessary in the case of farmers?

Mr. R. Ryan

Yes. It is unusual for a person to retire from farming at the age of 55 years without having ten years previous involvement in it.

Mr. Colley

Is that required even with regard to the property of which he is disposing?

Mr. R. Ryan

Yes.

Mr. O'Malley

The point we were trying to make last night without any success was that a farmer could be 30 years or more in farming. It appears it is useless to speak because the Minister is not listening.

Mr. R. Ryan

If a person were disposing of 100 acres and had 75 acres for five years before retiring, it would be considered he was in the same property even though he had added 25 acres within the preceding ten years. It would be deemed to be the one farm on which he was engaged.

Mr. Colley

That does not go the whole way but it is an interesting addition. Can the Minister state where this is said in the section?

Mr. R. Ryan

The same situation would arise in a business where there was new plant or an addition to the premises in the previous ten years. This section does not require that a business should remain static and not be improved in the preceding decade and this will apply to a farm as well as to a business.

Mr. Colley

I agree with what the Minister has said but the question arises of how far that can be stretched. If a farmer retained one acre for a longer period than ten years while the rest of the farm had been acquired within a few short years of his retirement, on that basis would the whole of the farm qualify under this section?

Mr. R. Ryan

It would be a matter for interpretation in each case. If the man had been fully occupied in working the one acre very intensively and had not engaged in any other activity and had added 99 acres in the previous ten years I am not certain what interpretation the Revenue Commissioners would put on it. However, it is obvious that that is quite different from a man who had one idle acre of land which he let out in conacre and then a few years before retirement bought 99 acres. These are matters of degree which must be determined in each case, having regard to all the facts, including the person's occupation.

Mr. T.J. Fitzpatrick

(Dublin Central): The point Deputy O'Malley was making last night was that this would favour the large holding. However, the farmer who had to sell his farm for £50,000 or £60,000 and moved to another farm but only holds it for about five or six years would not be exempt going on the example the Minister has now given.

Mr. R. Ryan

As I said before, if we try to legislate for every possible human business relationship we will end up with an Act which is unworkable and which in the long run, will leave out many cases which would be covered if the matter were left to the Revenue Commissioners. On the one hand, the amendment suggests leaving some discretion in the hands of the Revenue Commissioners. Discretion is exercised in the case of a certificate issued in respect of a man's health.

Mr. Colley

But it is giving them a discretion.

Mr. R. Ryan

Yes, but the proposal here is tantamount to expecting the Revenue Commissioners to act in an illegal way in exercising discretion. By not trying to cover every possible arrangement of property the Revenue Commissioners will in the ordinary administration of the tax law use that discretion.

Mr. Colley

Provided they have that discretion.

Mr. R. Ryan

It must be done in this way because if you tighten up the law to cover every possible situation you will do a disservice to people who would be helped by leaving the law as the Bill proposes. If we proceed to say that a farmer may take on X acres in the previous ten years but not X plus Y, and so on, in order to be regarded as occupying the property and using it for a period of ten years, then you are going to leave everybody who is the other side of X plus Y with a greater sense of grievance and you force the Revenue Commissioners into a more detailed investigation of all the details in qualifying assets over the previous decade. What they will look at is the situation in the round rather than going through the trading accounts of the previous ten years to see what was taken in and what went out. I am satisfied this is a much healthier way in which to leave it. If the taxpayer feels aggrieved and he thinks justice has not been done, he has the right of appeal. I am not saying that is the reason we should not be careful. We must be careful to ensure an injustice is not done and the best way to ensure that is to leave the section the way it is rather than produce tight laws which will create an impossible and unworkable code.

Mr. Colley

Where we have suggested the Revenue Commissioners should exercise discretion we have been recognising the difficulty and, indeed, the undesirability of spelling out in precise details all the cases that require to be covered. The Minister may be missing the point we have been urging on him which is to ensure that, where the Revenue Commissioners should have a discretion, they have that discretion. The Minister has given us some information as to how it is intended the Revenue Commissioners should operate the section. I want to ensure that they can operate it when it comes to the crunch. Part of the definition of qualifying assets reads:

"Qualifying assets" in relation to a disposal includes the chargeable business assets of the individual which, apart from tangible movable property, he has owned for the period of ten years ending with the disposal . . .

That is what the section says. The Minister tells us the Revenue Commissioners would interpret that as including fairly considerable assets he has not owned for the period of ten years ending with the disposal but which he acquired and added to his existing assets. I am not quarrelling at all with the Revenue Commissioners dealing with the matter in that way. There is a strong case to be made for it and for looking at the matter with some discretion, but I am questioning whether the Revenue Commissioners have power to do so having regard to the provision. Assets which he owned for the period of ten years ending with the disposal seems to be to tie down the Revenue Commissioners very much and not to secure what the Minister has told us is the intention of the Revenue Commissioners.

What we are concerned to ensure is that, where the Revenue Commissioners should have discretion, they are given it. It is all very well for the Minister to say they will do it in a certain way but he will agree that they cannot do things in a certain way unless the legislation gives them the power and the discretion. On the face of it, I suggest the definition of qualifying assets does not give that power to treat the matter in the way the Minister has suggested.

Mr. R. Ryan

I will certainly look at the section again to see if a certain flexibility can be built in without opening the way to avoidance.

Mr. O'Malley

The Minister does not seem to realise that, if there is a dispute between the inspector of taxes and the taxpayer, in the first instance, and between the taxpayer and the Appeals Commissioners in the second instance, and the taxpayer is assessed for capital gains in a situation such as I outlined last night, and reading this debate and what the Minister said he believes he should not have been assessed and appeals on a point of law to the High Court the court has no option but to rule that he is liable for tax. I gave an instance last night of a farmer who had been farming for 30 or 40 years and who changed his farm within the last ten years. This is a frequent occurrence because people change their farms quite a few times. If he changed his farm ten years before he disposed of it on retirement, it is not a question of the Revenue Commissioners being sympathetic or trying to interpret the law to assist him. They have no option but to tell him he does not qualify for relief. It is not enough for the Minister to say they will interpret the law in a way that will be helpful to him or give him the benefit of the doubt. We have had too much of this kind of thing in this debate. The High Court and the Appeals Commissioners will not read these debates and all they can do is interpret the Act as it stands. As the Bill stands here and now the situation we have been talking about is not covered and the inspector of taxes, the Appeals Commissioners and the High Court would not be justified in giving any kind of relief and the Minister should, therefore, amend the Bill. I would like from him now a clear undertaking that he proposes to amend it on these lines on Report Stage. If he does not do so the situation will be quite unsatisfactory.

Mr. Callanan

I recognise the impossibility of spelling out every case but there is ground for the Minister accepting this amendment. Deputy O'Malley is quite right in what he says with regard to interpretation by the court. I referred last night to the Planning Act. Planning programmes are drawn up by local authorities and they can be interpreted in a different way entirely by the officials.

What the Minister really meant was who should or should not get relief but it is a different matter when this comes for interpretation. The Government and the Opposition have discussed this and they know their minds but the people interpreting this will be the Revenue Commissioners or the courts. It will be interpreted either black or white by the courts. I repeat what I said last night that there should be some way the individual can appeal to the Minister who represents the Government and the people. He should interpret the legislation which he brought into the House.

Mr. R. Ryan

It is probably better for the general public that the people who apply the tax laws are the Revenue Commissioners and not any Minister of State.

Mr. Callanan

I am talking about the interpretation of it.

Mr. R. Ryan

It is especially necessary in regard to the interpretation of it. It is absolutely necessary for the protection of the individual that there be no political involvement in the application of tax laws once they are passed by the Dáil. The political responsibility is in drafting the legislation in the first instance and in the event of cases coming to political notice, which indicate that the existing law is creating hardship, then to amend the law. I certainly give the undertaking, which I think is unnecessary when I put it on record, that if in the light of experience of applying this Bill or any other Capital Taxation Bill, cases come to light which are inequitable, I will not hesitate to amend the law and, if necessary, retrospectively in order to ensure that hardship will not be done.

As far as this particular section is concerned, I am prepared to look at the possibility of amending the subsection in such a way as would ensure that in the case of people who have at the time of retirement assets which have not been held for ten years but which are similar to ones which were previously held the relief might be given. Of course, we would want to be certain that we do not open the way to avoidance devices for the clever merchants with substantial moneys who may be seeking to make a quick gain, tax free. If it is possible to devise a suitable amendment to deal with the case Deputy O'Malley mentioned of a farmer who has 100 acres of land in 1975, who sells it in 1980, replaces it with another farm immediately and retires in 1990, I shall bring one in. I believe there is merit in considering an appropriate amendment to deal with such cases and I would prefer to see if a suitable one can be devised before the next Stage.

Mr. O'Malley

I am delighted to hear the Minister say that. I cannot resist pointing out that that, in effect, was the amendment we moved last night which was defeated. I see the Minister now agrees it was reasonable and that he will move a similar amendment on Report Stage. I look forward to that and I am glad to see that our efforts in this respect have borne some fruit.

Mr. R. Ryan

The Deputy's amendment was quite different. He is in different humour today from what he was last night.

Mr. Colley

The Minister did not recognise the validity of the argument last night. At least he is recognising it this morning.

Mr. R. Ryan

Last night's argument was in relation to the holding of assets. I am not making any change in relation to the duration of holding the assets.

Mr. O'Malley

My humour last night, as I recollect it, was perfectly equable. It is a matter of opinion as to whether the same could be said about the Minister's but we can put it down to the upset to his metabolism because of too much travel recently and leave it at that. The more you read and reread the different subsections of this section the more you find in them. On my initial reading of subsection (1 (a) (ii) I thought that the normal type of marginal relief applied but I find now that it is not and there is a very quick cut-off in the marginal relief. If the consideration for the disposal of an asset, business or a farm on a person's retirement exceeds £50,000 the amount of the capital gains tax chargeable on the gain accruing on the disposal shall not exceed half the difference between the amount of that consideration and £50,000.

It is not half the tax that will be payable but half the consideration, which is a very different matter. In practice, it is three times as much with the result that the marginal relief will have had to be very small. Would the Minister not consider, in accordance with the usual practice in this type of thing, relating the marginal relief not to the consideration, which is never done, but to the amount of tax?

I have read section 26 (1) (b) about six times and it is the classic of all time. It should be printed and sent around the country to people. What it means is totally beyond me. I cannot aspire to the heights of intelligence attained on the other side of the House but I have passed a few examinations in my day and I do not know what it means. It reads:

For the purposes of paragraph (a), the amount of 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.

A Leas-Cheann Comhairle, with your long and distinguished academic record, could you interpret that for me because I am sure the Minister cannot? There is nobody else on the other side of the House I can ask. Not alone do I not know what that means but it seems to me that it means less than nothing. It states that the amount of the capital gains tax chargeable in respect of the gain shall be the amount of the tax which would not have been chargeable but for the gain. How could you have an amount that would not have been chargeable but for the gain? Taking the "but for" as a negative it immediately follows the other negative "which would not have been chargeable". Do the two negatives cancel each other out? If so, what is the effect?

The High Court and the Supreme Court will probably spend about three days trying to work out what this means and they will not have the benefit of the advice of the Revenue Commissioners or the draftsman. They will simply be faced with the four lines in this paragraph and the arguments of counsel on each side which will not be authoritative. Counsel will only be doing the best they can from their respective points of view. It may be that the Revenue Commissioners and the draftsman mean something specific by this. Could we be told that and could we then see if there is any way in which we could render this into language which is intelligible? The phrase is "shall be the amount of tax which would not have been chargeable but for the gain". If there was no gain there could not have been any tax chargeable and how one can, therefore, talk about the amount that would not have been chargeable but for the gain is beyond me. I am not, as I was accused of last night, making up impossible cases.

I cannot give any example in relation to this because I do not know what it means. The distinguished Leas-Cheann Comhairle does not know what it means. We will wait now and see whether the Minister can tell us what it means. It may mean something, but if it does it should be rewritten in a way that is intelligible to normal mortals, because some unfortunate taxpayer is going to spend a few days in the High Court or the Supreme Court at perhaps several hundred pounds a day trying to get this interpreted. He may or may not succeed. Nobody could advise anyone as to the meaning of it as it stands.

Mr. R. Ryan

We had a very lengthy debate yesterday, as I am sure Deputy Colley will confirm, on section 17 (2) (b) which is exactly on all fours with this. We had a further debate on it this morning. I have gone into it in great detail. I have given an assurance to the House that if it is possible to express the meaning of the section in language which is more helpful I will put in an amendment on the Report Stage. I do not think I can take it any further than that at this stage.

Mr. O'Malley

I assume, therefore, that the Minister is like myself and does not know what it means either. As a matter of general principle it is wrong that this House should be passing things like this. It is sheer gibberish, gobbledegook of the worst kind. Why not put in a section in Africaans or Swahili? We will not know what it means, but we do not know what this means either. I am glad the Minister has said that if it can be expressed more intelligibly he will try to do it on the Report Stage. I do not think a paragraph like this, the meaning of which the Minister does not know and nobody in the House knows, should be passed. The courts ultimately will have to be called on to interpret what this means. I do not think they will be able to do it either. If they do, it will be a stab in the dark because it could mean any of many things. I simply feel that when a draft of a Bill that contains things like section 27 (1) (b) comes up to a Minister it should be sent back by the Minister to the draftsman to be put in a way that is intelligible. It is clear that the Minister is no wiser about it than I am. We are all very foolish in passing something that we do not know the meaning of into law. It defeats the whole purpose of this House.

Mr. Colley

I can confirm, as the Minister says, that we dealt with a similar provision in two previous sections and it is true to say that in discussing them Deputy de Valera, the Minister and myself all found ourselves unable to make sense of a particular phrase which is repeated here and has been referred to by Deputy O'Malley. The Minister has undertaken to produce an amendment that will clarify it. "Clarify" is perhaps the wrong word because at the moment it has no meaning. I would certainly go along with the point of principle raised by Deputy O'Malley, but there is another matter of principle that I want to refer to. I believe it is something we must say and cannot allow to pass.

We have had an example on this section and we have had it earlier on other sections of the Minister telling us what way the Revenue Commissioners interpret the section and intend to operate it. That is helpful, but what disturbs me is when I find that the Revenue Commissioners apparently intend to operate and interpret a section in a way which, on its face, the section does not allow them to do. As an example there is this matter of the definition of "qualifying assets". It says specifically that they are assets of an individual which he had owned for the period of ten years ending with the disposal. I know the Minister has said that he will have a look at this and amend it and I appreciate that. That is not the point I am making. The point I am making is that it is not the first occasion on this Bill on which the Minister has given the House the Revenue Commissioners' interpretation and intention as regards the operation of sections, an interpretation which is not on the face of it open to them. I find this disturbing because it means that the Bill, as drafted, and, in particular, this part of this section, does not meet the requirements of the Revenue Commissioners and that they simply have to stretch it beyond what, on the face of it, they are entitled to do in order to do justice. It is admirable that they should want to do justice, but they have to do it within the law and it is our function here to see that the law as passed is such as to enable them to do justice.

Alternatively, it would seem that the Bill as drafted is not what was intended and that instead of, when this was discovered, the Bill being redrafted in these particular aspects, it was simply circulated and brought in here and is being pushed on with although it is clear that in some respects it does not represent what was intended by the Revenue Commissioners. I find this process disturbing and I feel I must say so. I do not want to denigrate in any way any public officials when I say this, and the ultimate responsibility is that of the Minister, but we must protest when we find a Bill being proceeded with which clearly is not drafted to do what the Minister says is intended to be done.

It is of considerable value that the Minister intends to amend the Bill, and that is not what I am complaining about. I welcome that. What I am complaining about is that, on its face, it does not do what the Minister says it is intended to do. It is true that on the passage of any Bill some problems may be discovered, some lack of clarity and indeed, as a result of a change of opinion by the Minister concerned, arising out of discussion, amendments may be needed. That is as it should be, but that is not the position here. I am raising the point now because this is by no means the first time it has happened on this Bill. The record will show that it has happened in a number of instances, including the one to which Deputy O'Malley has been referring. I think that is the third time we have come across the particular phrase to which Deputy O'Malley was referring, which does not mean anything. It may appear further on in the Bill too. I do not think it is good enough that this Bill should come in here with provisions which do not represent what the Minister intends—I say "the Minister intends" because when he tells us that the Revenue Commissioners intend to operate in a particular way, it is to be taken that that is what his intention is. Either that or they contain unintelligible paragraphs as indicated already by Deputy O'Malley.

I really do not think that is good enough. We have an obligation to protest when that happens. Whoever is responsible down the line, the Minister is responsible to this House in the matter. I want to protest at this being done. It is a slovenly way to do business, a way that can cost a great deal of money to taxpayers. While no system is perfect and no individual is perfect and we will always have defects, the defects that are coming to light in this Bill are so frequent, so blatant that a protest in regard to the manner in which this Bill has been brought before us, without apparently being corrected, is called for.

Mr. R. Ryan

I cannot accept the argument in respect of a section which operates to the relief of taxpayers. If that is a defect in the Bill, that is the Opposition's view, not ours.

Mr. O'Malley

Of course, this is typical, unfortunately, of the glib, cheap, miserable remarks of the Minister for Finance.

Mr. R. Ryan

I suppose the Deputy will say that he is not being personal. However, go on.

Mr. O'Malley

It is typical of the Minister. One of the reasons why all the finance legislation passed in the past few years is of such low quality is that it has been impossible to debate it properly in the House. All the time one runs up against this kind of sneer, which has nothing to do with the facts.

Let us put the section in perspective. When this capital gains tax was proposed in a White Paper on 28th February, 1974, private residences, businesses and all the rest of it were supposed to be included. Special reliefs were subsequently brought in to cover a number of things as a result of the storm of protest which quite legitimately was raised after the publication of that White Paper. One of the things that people are led to believe are free of capital gains tax is the disposal of a business or farm for £50,000 or less on retirement by somebody aged 55 years. That is the general belief that has been put abroad by the White Paper and by the subsequent amendments to it. This section which purports to put it into effect so far as disposal on retirement is concerned runs to nearly two pages. It starts off by taking the general proposition and it then cuts down the general proposition in such a way that a vast number of people who at the moment believe that they will be entitled to this relief will in fact not get the relief. That is what we are protesting about.

Some of the phraseology that is used is, on everybody's admission, including the Minister's, unintelligible. Nonetheless it is retained in the Bill. We are asked to pass this section even though the section has two major defects as outlined by Deputy Colley, one, that part of it is unintelligible and not understood by the Minister or anyone else and, secondly, that a whole lot of people who think they qualify for relief and who the Minister intends should qualify for the relief will not get the relief because the drafting is different from the interpretation the Minister is trying to put on it. It is not enough, as we pointed out ad nauseam for the Minister to say, “we want it to mean X” when in fact it is drafted in such a way as to mean Y. It apparently is a matter of no concern to the Minister.

Our attitude to the relief contained in this section is that, at the very best, it is not very generous. A man can dispose only of a comparatively small farm free of capital gains tax on his retirement after a long period in farming and unless he fulfils a lot of onerous conditions that are in the small print in this section that the general public do not know anything about, he loses even that small relief.

Our attitude to the section must be coloured by the fact that we see in the section a whole lot of things that apparently were not intended but nonetheless are there and so far as we can see will be left there, not the least of which is a paragraph that I have referred to already and to which others have referred, which is totally unintelligible. Presumably if the Revenue Commissioners knew what that paragraph means—section 26 (1) (b) —they would have informed the Minister what in their opinion it was supposed to mean and he presumably would have informed the House. That has not happened. The Minister agreed by implication that it is unintelligible and he does not know what it means and it is left at that. One can only assume that the Revenue Commissioners also do not know what it means. Presumably, the only person who does know is the draftsman. In these circumstances the draftsman should be sent for in order that he might convey to the Revenue Commissioners what it means and they in turn might convey to the Minister who in turn might convey to the House what section 26 (1) (b) is supposed to mean. That is the least that should be done for the House because we feel quite strongly as a matter of principle that it is an abuse of the legislative process to ask this or any other House to enact into law something that literally nobody knows the meaning of.

Mr. T.J. Fitzpatrick

(Dublin Central): I should like to get clarification on one point. Does a man have to retire completely in order to qualify for the relief on £50,000? I am thinking of the case where the husband owns a farm value £50,000 and the wife owns property. The husband decides to dispose of his farm. Will he be exempt in respect of the £50,000?

Mr. R. Ryan

No. He will be disposing of the asset. The concession he gets is that he pays no capital gains tax on the disposal of the asset but if he works at something else——

Mr. T.J. Fitzpatrick

(Dublin Central): Is the tax paid in respect of the first £50,000 on the sale of that farm?

Mr. R. Ryan

No. He will not pay capital gains tax on that first £50,000.

Mr. T.J. Fitzpatrick

(Dublin Central): So in effect there is no such thing as retirement. It is the first £50,000 that you dispose of. It is not retirement after 55 years of age.

Mr. R. Ryan

Subject to all the other things: 55 years of age, ten years possession of the property, value not exceeding £50,000.

Mr. T.J. Fitzpatrick

(Dublin Central): That is what I want to get clarified. He can dispose of £50,000 of his assets if he is over 55 years of age and holds the property for ten years?

Mr. R. Ryan

And he gets the relief only once in a lifetime.

Mr. T.J. Fitzpatrick

(Dublin Central): Take the case of a man who has two farms valued at about £25,000 each which he has held for the necessary ten years. He decides to dispose of one of them but holds on to the other farm for another six or seven years. Will he follow through with the concession as regards the £50,000?

Mr. R. Ryan

Yes.

Question put and declared carried.

NEW SECTION.

Mr. O'Malley

I move amendment No. 28a:

Before section 27 to insert the following new section:

"Where a widow disposes of a farm or business which she acquired on the death of her husband, such disposal shall be free of capital gains tax, provided the consideration does not exceed £150,000."

The purpose of this amendment is to provide that where a widow disposes of a farm or business which she acquired on the death of her husband, such disposal shall be free of capital gains tax, provided the consideration does not exceed £150,000. The position at the moment is that the acquisition by a widow of a farm or business on the death of her husband is free of capital gains tax. It may be subject to other taxes but death is not regarded as a disposal for the purposes of this Bill. A gift is, other than a gift to a wife.

In many cases leaving a farm or a business to a wife is of value to her only if she is able to realise it. In a great many cases she is not able to carry on the business or the farm. She may be able to pass it on to her children if she has any and, if she does that, they are subject to capital gains tax. She may have to sell it if she has no children, or if the children are too young, or if the children are not interested. As matters stand under this Bill, she is caught for capital gains tax if she sells the farm or business, or if she passes it on to her children. That is wrong.

The selective examples given by the Minister and the Government in relation to thresholds for widows and children on the passing on of property so far as inheritance tax and gift tax are concerned, become meaningless when it is realised as is the case, that such transactions are, in fact, subject to capital gains tax at 26 per cent on the value of a gain. In this instance, if a widow sells the farm which she got on the death of her husband, or if she passes it on to her children, liability immediately arises for capital gains tax on 26 per cent of the gain. The gain could well be substantial. The gain might be a gain not in terms of an increase in real value as such, but simply a gain in terms of inflation, a purely paper gain which is of no value in real terms.

We are seeking to confine this relief to smaller businesses and farms and, therefore, where the consideration or the value of the property exceeds £150,000 we would be less concerned about it because those people would be in a better position to meet the burden. They will have to meet a terribly heavy burden in regard to capital gains in this kind of situation. They have been led to believe that there is a threshold of £150,000 in relation to these transactions within the family. There is not. Very much smaller transactions can be caught for capital gains tax and, in many cases, the amount people will be called upon to pay will be quite substantial.

In the course of my own practice I have recently drawn the attention of people who were making family transfers to the fact that there is a likelihood of liability for capital gains tax. This has come as news to them all, and it has caused many problems for people the great majority of whom are not aware of the provisions of this Bill and of the fact that a great many people will be caught for quite substantial amounts of tax of which they now think they are free.

Many people are still under the impression that it is in their interest on the transfer of a property such as a business or a farm to have it valued as low as possible by the Revenue Commissioners with a view to saving stamp duty, which was always the objective in these matters up to now. The situation is quite otherwise now because, in many ways, the higher the valuation the more capital gains tax will be saved in the long run. People do not realise this and many of them get themselves into a tremendous amount of difficulty due to the fact that the composite overall effect of these four new taxes has never been clearly explained. People do not realise that although they appear on the face of it not to be liable for inheritance tax or gift tax, they may well be liable in quite a number of cases for capital gains tax and in certain cases also for wealth tax.

This amendment would get over the situation in which considerable injustice would be felt by a widow either on the sale of the farm or business or on the transfer of it by her to her children. She feels that if it is to be free of gift tax or inheritance tax it certainly should also be free of capital gains tax. This is particularly so in the case of a voluntary transfer from a parent to a child where there is no money passing and where the possibility of ready cash being available to pay this very heavy new tax will be fairly remote; where resort will have to be had to the banks to raise overdrafts to pay capital gains tax, where there is not really a capital gain at all, where the paper gain may be due to inflation and where no cash passes and, as a result, no cash is available to make payment of the tax.

To have a capital gains tax on such an internal family transaction as that, or on a sale by a widow who believes she is now free of all taxes up to £150,000, is quite wrong. Such a situation should be covered. It should be free from any possibility of liability for this tax.

Mr. R. Ryan

Under section 27 a widow aged 55 years who disposes of a farm or family business to her children for £150,000 and the farm or family business has, between herself and her deceased husband, been in their ownership for ten years or more will be exempt from capital gains taxation on the transaction. The proposed amendment seeks to go further than that and suggests there should be no conditions as to age or disposal to the family. The only condition is widowhood. The relief in section 27 is generous by any standard. It is intended to encourage the keeping of fairly substantial farms and businesses within the family and to avoid their breaking up, which had to occur under the estate duty system.

If the amendment were accepted it would be contrary to the social objectives of the Bill. It would encourage the sale of property outside the family. There are no grounds either social or equitable for doing this. I cannot accept that there is hardship in any person being asked to pay capital gains tax on the disposal of a farm or business outside the family for £150,000.

Let us assume that such a sale takes place on a consideration of £150,000. There is a gain of £50,000 and in such event the capital gains tax would be £13,000 out of £150,000 leaving a net £137,000.

Mr. T.J. Fitzpatrick

(Dublin Central): It might be a property of only £60,000. Do not pick the high figure.

Mr. R. Ryan

This would get an annuity varying from £15,000 to £20,000 per annum, depending on the age. I think that that cannot by any standard be called hardship and if it be so, then 99.999 per cent of our people are suffering hardship. In the case of smaller farms and businesses up to the value of £50,000, if the widow fulfils the conditions in section 26 as to age and duration of ownership, a disposal even outside the family would be free of capital gains tax.

Mr. T.J. Fitzpatrick

(Dublin Central): That is, if she is over 50.

Mr. R. Ryan

Over 55. By any comparison with what operates in any other country which has capital gains taxes, and virtually every country now has capital gains taxes —and we are a disgrace to the world in this field—these exemptions and reliefs which we are giving are far more generous than what operates anywhere else. I think that is significant. It is time we started to get our tax code in line with those that have been found to be appropriate in all the progressive and successful countries in the world. There is no use arguing, as has so often been argued, that only countries which are wealthier than we are can afford such taxes. They can, but so can countries which are poorer than we are. Many of them have taxes far more severe than ours. This is by any standard in relation to taxation of capital gains a Bill which is directed towards people of comparative wealth compared with the masses who have none at all. To say that a small tax on an element of gain in a very substantial sale is a hardship seems to me to be stretching the English language too far.

Mr. T.J. Fitzpatrick

(Dublin Central): Since we started discussing capital taxation in relation to wealth tax, capital acquisitions and capital gains tax, we have heard Government speakers justifying their taxation on the basis of the large thresholds which are contained in it. We have heard the Minister speak now of the generous reliefs he has given as between husband and wife and husband and sons and daughters, but the reality of the situation is that there is no exemption at all given in the case of the sale of a property where a widow has been left the property and finds herself with six or seven young children. Is the Minister so far removed from reality that he does not know what is happening in the business would today? Is he aware that you could have a transfer of property today, a property of any description —hardware, grocery, or public house —and this is happening every day in the week—where the widow has never participated in the running of that business and has no knowledge at all as to how it should be run? She has these young children and down through the years it was the husband who solely ran the business.

We find ourselves now in the situation that she is entitled to this exemption of the thresholds up to £150,000 but this widow is not capable of carrying on this business, due to her not having past experience and having a young family so that she is unable to devote her time to it.

She can easily find herself in the situation in which she will have to dispose of this property and when she does—let it be for £50,000 up to £250,000—the valuation will be taken as of when the husband acquired the property. If he acquired it in 1974 and she has to dispose of it in 1984, the valuation will be taken as of the date when the husband purchased that property. Surely it is not realistic that the Minister should say that we are giving substantial reliefs in that case? The Revenue Commissioners will go back to the date when the property was originally purchased by the husband—let it be April, 1974—and they will assess the property ten and maybe 20 years later, in 1994, and she will have to pay capital gains tax on that property, on every penny of it except for a slight relief in respect of the children. If the Minister boasts that there are concessions in the Bill and that he is generous as regards the thresholds he has written into the Bill, I cannot see them in a case such as this.

I believe that even if the Minister were to bring forward some amendment to close loopholes which may be in our amendment, it is a concession which he should grant, because the Minister has given the example of a business man or woman selling at £150,000 and the income this would return. It may not always be the case that the sale will be for £150,000 but for £40,000, £50,000, or perhaps £70,000. That widow would have to depend on that money to keep herself and her family going maybe for the next 20 or 30 years. Many of her children may at the time be only three or four years of age. Quite often we see cases of husband dying at 45 or 50, leaving children ranging from three years to 12 years. I can think of many businesses in which the wife does not participate actively from day to day and when the husband dies she is certainly not in a position to carry on that business. I have seen widows having to dispose of their businesses and have seen other cases where widows held on to the businesses, which proved disastrous because they had no knowledge of the businesses. It would have been much better if such a widow had disposed of her holding when the husband died. At least she would have something, but she continued to hold on to the property, having no knowledge of it, with the result that it was run down over a number of years and she had to dispose of it at a far lower value than she would have got if she had sold it after her husband died. If the Minister tells me that there is not a case here for exemption for that widow, I believe there is very little of a social conscience in this Bill.

The Minister yesterday could point to several societies which would be exempt from capital gains tax in the pursuit of their business and if you look at section 23, you will see a number of societies and organisations which are exempt and which can pursue their normal business exempt from capital gains tax. Any of the large unions can pursue their normal business—let it be real estate or any other type of business or dealings in property.

Compare such organisations with a widow with five or six young children who is forced to dispose of her property shortly after the death of her husband and there is no justification for not exempting her. If there is no justification for exempting that widow then my sense of equity is entirely different to the Minister's.

A lot of people, having read this Bill and the Capital Acquisitions Tax Bill, were under the impression that these great exemptions existed, but they do not, and the proof of that is in this section. The people have been misled into thinking that these thresholds and exemptions exist and they heard many Government Deputies boasting about these exemptions. The moment a person disposes of property outside the family circle the exemption vanishes. We are not looking for an exemption for a son if he is 25 years of age or over so that he can gamble it on the Continent or buy a yacht. Deputy O'Malley and I are interested only in the widow. There is every justification for exempting a widow with young children who is forced to dispose of her property.

There is a greater case for an exemption of that property than exempting bodies such as trade unions who can freely deal in real estate. The widow faces an additional problem in that the Revenue Commissioners will refer back to the time when the husband purchased the property. It is on that valuation that capital gains tax will be assessed. There is more merit in this amendment than a lot of the amendments discussed on this Bill.

We are not asking for the exclusion of the son or daughter of 24 or 25 years of age because they would be capable of building up their own assets, but a widow who has contributed in some way to building up these assets in conjunction with her husband should be entitled to some concession when she is forced to dispose of the property.

Mr. Lalor

I was amazed to hear the Minister for Finance, in commenting on the contribution made by Deputy O'Malley, latching on to the figure of £150,000. The Minister told us that if such a widow sold the property and paid the capital gains tax she could invest the balance and live joyously off the interest. I felt the Minister was working up to a stage where he would suggest to Deputies O'Malley and Fitzpatrick that if they had mentioned a figure between £70,000 and £100,000 he might have considered that rational and worthy of consideration. Deputy Fitzpatrick has cited many cases, and all Members could cite instances where widows with children are forced to dispose of their property shortly after the death of their husbands.

In some cases the business or farm was purchased for £20,000 four or five years ago but because the widow never took any part in the business she is forced to dispose of it. This happens very often in the case of licensed premises which have inflated in value. With the crucifixion by the Department of Industry and Commerce in relation to prices such a woman would need to have served her time to the fullest extent in the licensed trade if she was to survive. Such a widow is pitched in at the deep end and because she has not had any experience she has only two alternatives, to find a replacement husband experienced in the licensed trade or dispose of the property.

The estate agents value the property and at the same time the Revenue Commissioners wait to collect 26 per cent of the capital gain. That could amount to anything between £10,000 and £15,000 capital gains tax. That is not what I read into the White Paper on the distribution of wealth. The Minister has gone out of his way to tell us that we are backward in so far as we are the least taxed people in Europe. He has told us that most modern progressive countries—it is very hard to find them now—have all these forms of taxation and has suggested that we in Opposition should not be the sticks-in-the-mud to prevent him keeping up with the rest of the world in the taxation of people. The Minister introduced the figure of £150,000 into the Bill and takes credit for having given relief on that figure and that is the reason why the figure was chosen by my colleagues. If this amendment is not accepted or if the Minister does not convey that he is willing to insert a similar type of amendment a widow in those circumstances will be put in an unfortunate position, on top of the fact that she has lost her partner in life. As Deputy Fitzpatrick said, we are not fighting this battle for the gay son or daughter. Fair enough, she may be a gay widow— we have no control over that—but this battle is not being fought for somebody to go gadding all over the world, having sold out the place, to enjoy themselves.

I had not intended participating in the debate on this issue were it not for the fact that the Minister decided to choose some sort of a figure of .1 short of £150,000, making the case that the Opposition amendment was simply and solely to make provision for some rich widow somewhere. That is not the purpose of the amendment. Its purpose is a realistic one, making a very justifiable point. From my point of view, I cannot see why the Minister should not take it far more seriously.

Acting Chairman (Mr. Pattison)

Is the amendment withdrawn?

Mr. O'Malley

No, Sir.

Mr. T.J. Fitzpatrick

(Dublin Central): I can see merit in this amendment. It is obvious now that the propaganda put out about thresholds and exemptions is false and the reality is right here. If a widow disposes of her property today, there is no threshold. She may make up her mind about that. The Minister will make no provision for her. There is very little exemption here for the widow when it comes to the sale of her property. With death duties at least a widow with four children was granted exemption on property up to £45,000. There is no exemption here from capital gains, good, bad or indifferent. It is most unfair that the Minister would not allow some concession for that type of case.

This is one amendment the Minister should see his way to accept. If he did not want to accept it, as drafted by us, he could have redrafted it to ensure that if a transaction took place only three or four years after her husband died, she should get some relief or allow the Revenue Commissioners a certain discretion in the matter. As I see it, there will be hardship cases immediately this Bill goes on the Statute Books. There will be widows who will be forced to sell their property. I am convinced they are unaware of the position at present. They think they are exempt but they will find themselves caught completely within this net regarding capital gains tax and will be assessed on the value of the property from the date on which the husband had purchased it. As far as that widow is concerned there is no longer any exemption; all the exemptions about which we read will not apply to her. The Minister seems to disregard completely the plight of that section of the community. In effect, they already find themselves in this situation because the Bill is already in operation. I know the amount of capital gains on any property sold in the past 12 months will not amount to much. But certainly in the case of any widow selling her property within the next 10 years, the value of such property will be assessed from April last and she need not look for the exemptions written into this Bill because they will not exist so far as she is concerned.

Mr. O'Malley

It is disappointing the Minister is not prepared to meet this point at all. I understood him to say that section 26 relief was available to widows up to £50,000.

Mr. T.J. Fitzpatrick

(Dublin Central): If they are over 55

Mr. O'Malley

But it is not, in the circumstances envisaged in this amendment, because it does not come within the definition of a qualifying asset which has been owned by the individual for a period of 10 years ending with the disposal. It is no good to the widow if it is left to her and she has to sell. She does not get the section 26 or section 27 relief. She is in an impossible position.

As Deputy Fitzpatrick has rightly pointed out, the whole country is full of widows, or potential widows, who believe that, on the death of their husbands, they will be all right up to £150,000. Let us be clear that that is wrong. The only thing about which they are all right is inheritance tax. But, you see, death duties have been replaced by four taxes. People tend to forget that and think there is merely a new thing called inheritance tax. There are four taxes and a widow in this situation is very badly caught. It would not be impossible to work out a particular value, threshold, at which a widow will be paying more in capital gains tax than she is at present paying in death duties. There is no doubt that there will be such instances and that people have been misled.

Deputy Fitzpatrick pointed that out and it has not been denied by the Minister. It is perfectly clear. It is appalling that people were allowed to be so misled. We make an effort now to rectify the situation, to save widows from a very heavy imposition of capital gains tax which, for the most part, they know nothing about. But we are merely told it is fair that they should pay it. We cannot accept that at all. The great majority of widows whose husbands had been farmers or businessmen are not in a position to carry on those farms or businesses. Life is too complicated nowadays for the average widow, especially if she has a number of young children to look after, to be able to do that with any success at all.

So far as section 27 is concerned, a widow who disposes to her children by way of gift is free of capital gains tax only provided she is over 55. It will be the younger widows who will be hardest hit because they will be the people with the younger children. They will get no relief under this proposed section, in particular those who have to sell through no fault of their own. What I would try to make clear to them today is the fact that a transaction under £150,000 means nothing because while one may not be liable to inheritance tax, one certainly will be liable in the great majority of cases to capital gains tax which will be imposed at 26 per cent on the capital gain. And, as we all know, the capital gain may not be a real gain at all. It is purely a paper gain as a result of inflation.

Once again we would urge the Minister to accept this amendment and clarify what he and the Government have led the country to believe is the position. That is all we are trying to do.

As I said earlier, when dealing with family transfers, at present one brings to the attention of the people concerned the fact that there is liability to capital gains tax. People tend to look blankly at one and ask: How can there possibly be? There is no gain. It is an internal family arrangement. One has to point out to them that, nonetheless, the liability exists. Then they ask: Did the Minister for Finance—although they generally use some other terminology with which to refer to him related to a particular East European colour—not say that all these sorts of duties and so on are gone, that there will be no liability to any kind of tax or duty now on transfers of this kind? And one must reply: "Yes, he said that all right but that is not true; you are liable if you make this transfer now to capital gains tax at 26 per cent on the nominal increase in value that has taken place as a result of inflation." People tend to look blankly at one. I think some people thought I was telling them lies, that there could not be capital gains tax in this kind of situation. We are trying to rectify the situation by means of this amendment. Unfortunately our pleas are falling on deaf ears. It is a pity the Minister will not take the opportunity to rectify the situation. Assuming this Bill is passed, I have no doubt that within a year another Bill will be brought in to amend it. A flood of amendments will be made by the Minister because when people realise how this will affect them they will scream and roar and the Minister will have to give in to pressure. There will be many protests from Fine Gael branches, as there were in relation to the wealth tax. People do not realise that capital gains tax, a very substantial tax, will be payable on many transactions; it will be payable in areas which people did not envisage, and it will apply to situations where the Minister for Finance led them to believe it would not apply. The provisions are here in the Bill. We are trying to rectify them, particularly in relation to a widow who is forced to dispose of her husband's business or farm. She is in the most vulnerable position because probably she has young children and cannot take over the business. She thinks that because it is less than £150,000 she is free of tax but unfortunately she is in for a rude awakening. If this amendment were passed, she would not be in for that rude awakening.

Mr. T.J. Fitzpatrick

(Dublin Central): Will the Minister clarify the following point? If a widow inherits her husband's property, will she qualify under section 26 for the exemption of £50,000?

Mr. R. Ryan

Yes, if the husband and wife qualify. In other words, if there is ten years ownership between the two.

Mr. T.J. Fitzpatrick

(Dublin Central): We are in the situation that if a widow of 55 years inherits a property worth £100,000 she can dispose of £50,000 and will not be subject to capital gains tax.

Mr. O'Malley

That is not so.

Mr. T.J. Fitzpatrick

(Dublin Central): That is what the Minister told us.

Mr. R. Ryan

I told the Deputy it is so.

Mr. T.J. Fitzpatrick

(Dublin Central): Deputy O'Malley is under the impression that is not the case but we will accept the Minister's word. I have referred to a widow of 55 years and in her case it is most likely that her family are provided for and possibly are married and living away from home. However, a widow of 40 years who may have several young children will be subject to a capital gains tax of 26 per cent if she sells £50,000 of her husband's assets. There is an anomaly and an injustice here. The younger woman is in need of all the help the State can give because she must provide for her young children and in this respect her case cannot be regarded in the same way as the widow of 55 years whose family have grown up.

It might suit the widow of 55 years to dispose of the property entirely at that point because she would be well able to live on her means. However, the younger widow has a large part of her life before her and has to care for her children. When she is forced to sell the business, the Revenue Commissioners will investigate when her husband acquired it and they will assess the value from that date. They will take into account the amount paid by her husband and she will have to pay capital gains on the entire amount in excess of the original price paid by her husband. As Deputy O'Malley has pointed out, this cannot be regarded as a real gain because inflation has a major influence on the price.

We are giving a concession to a widow of 55 years but we are depriving a younger woman, who must care for young children, of the same concession. There is an anomaly here that we should rectify. I should like the Minister to clarify if a widow of 55 years will qualify under section 26. If that is the case something should be done for the widow of 40 years who has to dispose of the property.

Mr. R. Ryan

The position is a lot better than at present where a widow might have to pay 55 per cent duty on an estate irrespective of whether she wished to stay on in the business. The reality is that most widows maintain the family business or farm so that their children may succeed to it and they will succeed to it, free of death duties. If there is no disposal there are no capital gains. If there is disposal a liability would arise on such an element of gain as would have occurred, but it is a great deal less than what is chargeable at present and people, whatever tax they have to pay, will be in a better position than those who have no property at all.

Mr. T.J. Fitzpatrick

(Dublin Central): Surely the Minister will agree there is an anomaly where a widow of 55 can dispose of property tax free and a younger widow, possibly with a family and in a worse financial position, is subject to capital gains. There is an injustice here.

Mr. R. Ryan

Every time you provide a new exemption you create another anomaly. That is one of the problems. Giving assistance to people who are obliged to retire is dealt with in sections 26 and 27.

Mr. T.J. Fitzpatrick

(Dublin Central): Could the concession given to the widow of 55 not be given also to the widow of 30 or 40 with a family?

Mr. R. Ryan

There are many factors which would have to be examined. One is the probability of remarriage.

Mr. T.J. Fitzpatrick

(Dublin Central): That could be covered during the time she remains a widow.

Mr. R. Ryan

It would be very easy, I suppose, to claw back afterwards. It might make the prospect of remarriage a good deal less if liability to capital gains tax arose in the event of her remarriage.

Mr. O'Malley

What the Minister said in relation to section 26 is wrong. Deputy Fitzpatrick asked if the first £50,000 was free of tax and the Minister said it was. It was an over simple way of putting the question and it was also an over simple way of answering it. Section 26 (1) provides that if the consideration does not exceed £50,000, capital gains tax will not be chargeable on any capital gain made. If, however, the consideration exceeds £50,000 capital gains tax is chargeable on the whole of the gain subject to a marginal relief which shall not exceed the difference between the actual consideration and £50,000.

In other words, if the consideration is £100,000 and the taxable gain is £40,000, a widow aged 55 or over— she need not be a widow, any individual—who disposes of assets such as a business or farm on retirement and makes a capital gain of £40,000 will pay on the whole of that £40,000 at 26 per cent. Deputy Fitzpatrick was given to believe by the Minister that the first half of that would be free of tax. It will not, and I would like that to be clearly understood. If I am wrong, no doubt the Minister will correct me, but I have read the section very carefully and I do not think I am wrong.

Mr. R. Ryan

The £50,000 relief under section 26 is available in the ways in which I have told Deputy Fitzpatrick.

Mr. O'Malley

It is not.

Mr. R. Ryan

He asked me whether £50,000 relief under section 26 was available and I said yes, it was.

Mr. O'Malley

My recollection is that he asked was the first £50,000 free of tax because of section 26 and he then went on to give an example of a sale for £100,000. What I am pointing out is that section 26 is worth only a fraction of what the Minister has led people to believe it is worth because, if the consideration is more than £50,000, the whole capital gain is taxable subject to the very minor marginal relief in subsection (1) (a) (2). In the example I have given, if there is a sale by an individual aged 55 or over for £100,000, which contains a capital gain of £60,000, then that £60,000 less the first £500 is liable to capital gains tax at 26 per cent of £60,000 which amounts to a little over £15,000. People have been given the impression by the Minister that in some way the first £50,000 was free. The great difficulty that has arisen is that the first £50,000 could not be free because the £50,000 referred to is not £50,000 of capital gain but £50,000 consideration. The capital gain element could be only £5,000 or £10,000.

This matter should be approached quite differently. The reliefs should be given on capital gain rather than on consideration because consideration is totally misleading. One could sell for £300,000 and still only make a capital gain of £5,000. One could have acquired a business for £295,000 and sold it for £300,000, making a capital gain of £5,000. References to consideration are meaningless, and that is why section 26 is useless and that is why Deputy Fitzpatrick and others have been given the wrong impression as to the meaning of it. It does not mean what we have been led to believe it means.

It means something quite different. Even in the case of an individual aged 55 or over, if the consideration is more than £50,000 in effect there is no relief at all and tax is payable on the whole capital gain. It cannot be argued that it is not payable on the first £50,000 because that relates to consideration and you cannot apportion the element of gain in that, certainly not under the section.

If the section were redrafted you could say that on a sale for £80,000, where there is a capital gain of £X, the first five-eights of that capital gain shall be free because it would be £50,000 over £80,000. But that is not what the Minister has done. The section says if the consideration is over £50,000 no relief is available except the very minor marginal relief in subparagraph (2). It is, therefore, almost useless to anyone who falls into that category and Deputy Fitzpatrick, through no fault of his, was led into the mistaken belief that the element relating to the capital gain in the first £50,000 would be free of tax. It is not.

Mr. R. Ryan

If I misled the Deputy I apologise. I certainly had no such intention. The section is clear and it has been debated at length.

Mr. O'Malley

At least we know now where we are. In the light of the fact that we are now clear on the meaning of the section would the Minister introduce an amendment on Report Stage which will have the effect of relieving tax on the gain element in the first £50,000 of the consideration?

Mr. R. Ryan

The House has already dealt with that.

Mr. O'Malley

That is not an answer to the question.

Mr. T.J. Fitzpatrick

(Dublin Central): Would the Minister not reconsider this? There is merit in it in regard to the widow with four or five children.

Mr. R. Ryan

I will not close my mind to it.

Question put: "That the section be there inserted."

The Committee divided: Tá, 36; Níl 39.

Tá

• Allen, Lorcan.
• Andrews, David.
• Barrett, Sylvester.
• Blaney, Neil T.
• Brady, Philip A.
• Breslin, Cormac.
• Brosnan, Seán.
• Browne, Seán.
• Callanan, John.
• Calleary, Seán.
• Connolly, Gerard.
• Crinion, Brendan.
• Crowley, Flor.
• Daly, Brendan.
• Davern, Noel.
• de Valera, Vivion.
• Dowling, Joe.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• Flanagan, Seán.
• French, Seán.
• Healy, Augustine A.
• Herbert, Michael.
• Hussey, Thomas.
• Lalor, Patrick J.
• Lemass, Noel T.
• McEllistrim, Thomas.
• MacSharry, Ray.
• Meaney, Tom.
• Moore, Seán.
• O'Connor, Timothy.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Walsh, Seán.

Níl

• Barry, Peter.
• Barry, Richard.
• Begley, Michael.
• Burke, Dick.
• Burke, Liam.
• Collins, Edward.
• Coogan, Fintan.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Desmond, Barry.
• Desmond, Eileen.
• Lynch, Gerard.
• McLaughlin, Joseph.
• McMahon, Larry.
• Malone, Patrick.
• O'Leary, Michael.
• Ryan, John J.
• Ryan, Richie.
• Spring, Dan.
• Dockrell, Maurice.
• Donnellan, John.
• Dunne, Thomas.
• Esmonde, John G.
• Finn, Martin.
• Fitzpatrick, Tom (Cavan).
• Gilhawley, Eugene.
• Governey, Desmond.
• Griffin, Brendan.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• L'Estrange, Gerald.
• Staunton, Myles.
• Taylor, Frank.
• Thornley, David.
• Timmins, Godfrey.
• Total, Brendan.
• Tully, James.
• White, James.

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

Question declared lost.

SECTION 27.

Amendment No. 29 not moved.

Mr. R. Ryan

I move amendment No. 30:

In page 26, subsection (1), after line 59, to insert the following paragraph:

"(c) In paragraph (a) ‘children', in relation to a disposal, includes nephews and nieces who have worked substantially on a full-time basis for the period of 5 years ending with the disposal in carrying on, or assisting in the carrying on of, the trade, business or profession or the work of or connected with the office or employment.".

This amendment gives effect to the proposal made by me when introducing the Second Stage that the relief afforded by section 27 to an individual disposing of his family farm or business up to a value of £150,000 to one or more of his children should be extended to include disposal to deserving nephews or nieces of the individual. The amendment provides that such disposals to nephews or nieces who have devoted their time to assisting in the running of the business or farm for a minimum number of five years prior to the disposal will benefit from the relief.

Mr. O'Malley

We welcome this amendment which we advocated on the earlier sections. Now that it has been introduced in relation to capital gains, I hope it will also be introduced in relation to gifts and inheritance taxes. It would be illogical if it was not because while it is necessary here it is equally necessary in the case of the others. We asked for this amendment and advocated it strongly. We are glad that the Minister has now brought it in and we trust that he will act similarly in relation to the other matters we discussed. In particular I would urge him to bring in a similar amendment in regard to gift and inheritance taxes.

Major de Valera

I should like to join with Deputy O'Malley in the remarks he has made. We appreciate the Minister's difficulty. I can particularly understand a remark made by the Minister last night. He said that the difficulty about departing from a scheme was where to draw the line. I would like the Minister to know that his meeting matters in this was is appreciated but, of course, we will argue with him as to where the line is to be drawn. The Minister's predecessors on this side of the House understand the difficulty the Minister has as to where to draw the line. He said last night that he wished he had stuck to the White Paper. He is very wise in what he is doing in this amendment. It is very just and very equitable. I commend the amendment and the Minister.

Mr. R. Ryan

I thank the Deputies.

Amendment agreed to.

Question proposed: "That section 27, as amended, stand part of the Bill".

Mr. O'Malley

The same problem arises here as the one which I adverted to in relation to section 26. It is that the relief which is given on a disposal to children or nephews or nieces working full time applies only when the consideration does not exceed £150,000 and there is a very small marginal relief above that. Many people have been under the impression, and I must confess that I was on my original reading of these two sections, that there was relief on the first £150,000 if the consideration was more. It transpires, on a more careful reading, that if the consideration is more than £150,000 in the case of this section and £50,000 in the case of the preceding section there is no relief other than the very minor marginal relief given. This applies to a gift also. In fact, it would normally be a gift under this section because it is to children or nephews or nieces. If the value of the property that is given to the children is £175,000 and if that contains a gain element of £80,000, tax will be payable on £79,500 at 26 per cent. The marginal relief will not apply because the tax will be higher than the difference in the consideration. People do not realise that and it will be a very severe burden on people who do not realise that they will be subject to a burden at all.

Assuming that there is a gain element of £80,000, as I postulated, the tax is 26 per cent which is almost £21,000 and there is no relief at all for the first £150,000. Many people on reading these two sections originally thought the gain element in the consideration for the first £50,000 in section 26 and the first £150,000 in section 27 were going to be free. They are not, apart from the minor marginal relief given in subparagraph (ii).

Exactly the same arguments apply as those which I put forward in relation to the previous section except that in this case, perhaps, the injustice is greater because this is not a question of a sale outside the family in which cash is actually obtained. This is a question of giving a gift to a child or to a nephew who has been working full-time with you for five years and there is no cash passing normally in that kind of transaction. It is an outright gift. There may be reservations of rights of residence or support but there is no actual cash passing. The diffculty in paying the capital gains tax, therefore, will be all the greater.

I would urge on the Minister that he should on Report Stage either accept whatever amendment we might put down or preferably that he should put down an amendment which would have the effect of relieving from liability to capital gains tax the proportion of the capital gain which is equivalent to the ratio which £150,000 bears to the total consideration or value. In other words, if the total consideration or value were £180,000, 15/18ths of the capital gain should be exempt—at the moment 0/18ths is exempt in that particular example—if the consideration or value were only £150,000 18/18ths would be exempt. When you get to a certain threshold, suddenly you are down into the abyss and from having had an exemption up to a reasonably high point from capital gains tax you suddenly go over the precipice and are into an abyss which could destroy a family because they will not be able to raise the amount of money that is involved.

The problem can be met, I suggest, and I think the Minister agrees with me, by allowing exemption from capital gains on the gain element in the total transaction in the proportion which £150,000 bears to the total consideration. That is fair. That is doing what I venture to think was the original intention until the draftsman got at the original intention and made it into something else, which I am afraid we may not have spotted up to recently. It shows the value of taking these matters slowly.

The Minister cannot have spotted it either. I think the Minister was under the impression that the position was that the gain element in the first £50,000 in section 26 and the first £150,000 in section 27 was free. It was important, as I said earlier, in section 26. It is much more so in section 27 because there is no money passing in the normal way on section 27. Therefore, there is no cash available to pay the tax and in the kind of example I gave there would be tax of over £20,000 payable in circumstances where the people might have expected to pay £1,000 or £2,000. The £20,000 odd payable in capital gains tax will be additional to the 6 per cent stamp duty which will be payable. People often leave these matters out of consideration. There will be 6 per cent stamp duty, 26 per cent capital gains on the gain and the certainty in that instance that gift tax will be payable at varying rates and the likelihood of wealth tax being payable.

Mr. R. Ryan

A few examples will, I hope, help to show the justice of what is proposed. I want to emphasise that I have never asserted, and if I mistakenly misled the House I have already expressed my regret for doing so—that I was under any impression or that I was proposing that the £50,000 and the £150,000 should stand out on their own without being available to everybody. I am not suggesting that. The marginal relief is deliberately provided so that people who are above these thresholds will not find themselves left in a worse net position than if they were below them.

Here are three examples which will indicate the operation of section 27: sale to a family at £150,000; cost, £50,000—gain, £100,000. Were it not for the exemption provided in section 27 there would be a tax of £26,000 on such disposal to a family but the effect of section 27 will be to remove all liability to tax on that disposal to the family of £150,000. That is not small fry, even accepting the way property has increased.

The second example: disposal at £180,000 to a family: cost £60,000— gain, £120,000. The tax there without any exemption would be £31,200. There will be relief which is calculated in the following manner: taking the disposal value of £180,000, deducting from that the threshold of £150,000, leaving £30,000. The maximum tax is half of this, £15,000, instead of being £31,200 and £15,000 on £180,000 disposal is not atrocious.

With a disposal of that kind there would be very little element, if, indeed, there would be any at all, of inheritance tax. There would not be an inheritance tax in the first case I mentioned of £150,000. Obviously, if the property was disposed of to more than one at £180,000 there would be no element of inheritance at all. I want as far as possible to keep away from discussion of other taxes so that we can concentrate on these particular ones.

The third example—take disposal of property valued £200,000 which cost £100,000—gain, £100,000. The appropriate tax on that without exemption would be £26,000 but the difference between the threshold and the disposal value would be £50,000. Half of that would be £25,000. So, there would, in fact, be a reduction even in that case which would make the tax £25,000.

So that the marginal relief is scaled in such a way that it gives most relief at the lower ranges and as the disposal value gets greater and the gain is considerable, then the relief becomes less effective. That is fair. It is open to argument, as Deputy de Valera said, as to whether it should be more or less, or graded in a different way, horizontally or vertically. We will probably never cease to argue on that basis no matter who is in Government and who is in Opposition. There will always be people who will be just on the other side of the dividing line. It is a fair effort to strike at marginal relief.

Mr. O'Malley

Would the Minister not consider that a simpler and fairer way of doing this would be to allow relief on the proportion of the gain which £150,000 bears to the total consideration?

Mr. R. Ryan

Say the consideration was £300,000, which would be very considerable, the tax rate would only be half of what it would otherwise be. I would not consider that would be appropriate. If there is acceptance of the principle of a capital gains tax it must bite somewhere or other and the appropriate place for it to bite is at the higher level.

Mr. O'Malley

Another aspect which was dealt with by Deputy Fitzpatrick on the last section is the question of the individual having to attain the age of 55 years. That may be fair enough from the point of view of an individual businessman or farmer, but we gave an example on the amendment which was defeated of the widow below the age of 55 years having to pass on property or dispose of it in some way—in this section it would be just passing it on to one of her children or a nephew or niece. Does the Minister not agree that the younger the widow the greater the hardship to her and the greater the difficulty? In those circumstances, would he not agree to take out the words "who has attained the age of 55 years" at least so far as widows are concerned?

The older the widow gets the older her children will be, and the better prepared for life and for their various careers. They will probably be set up in their careers. The younger she is the more vulnerable she is, and the more difficulty she has in running a farm or a business the more anxious she is to dispose of it. Is it not creating additional difficulties for the widow whose problems are greater, and creating less difficulties for the widow whose problems are less? Could that phrase "who has attained the age of 55 years" be expressed not to apply to widows? A widow of 53 years of age may well have children in their mid-thirties who are well fitted to take over a farm or a business but, if she gives it to them, there is no relief. She may be giving it to them for nothing but they will have to pay capital gains tax on the entirety of the capital gain.

The other point I want to make is a repetition of what I said about one of the earlier sections and which Deputy Colley said about several of them. In subsection (1) (b) we have the same meaningless phrase again. We are enacting this several times in the course of the Bill. I do not know what it means. Could the Minister try to find out for us what it is supposed to mean? Could he ask the draftsman or the Revenue Commissioners or somebody who knows? Presumably somebody must know at least what was intended by it. I know it means nothing and therefore the Minister cannot explain what it means. Could he explain to us what it was intended by somebody to mean?

Mr. R. Ryan

I dealt with it yesterday on section 17. I said I would see if another form of words which would produce greater clarity would be feasible in the legislation.

Mr. O'Malley

What about the age of the widows?

Mr. R. Ryan

I dealt with that on section 26. I really cannot add anything to what I have already said except to say that the age of 55 years is unusually young for special consideration in relation to retirement. It is 65 years of age across the water. While not wanting to oblige any widow to remain in a business or farm which her husband had prior to his death, in the generality of cases the widows are only too happy to retain the business or farm, not only because of the prospect it gives them of an assured income but also in anticipation that some of their children will succeed to the business or farm. In such a case a disposal does not arise and therefore the liability to capital gains tax does not arise either. We are dealing with cases which would be few and far between if they occur at all.

Mr. T.J. Fitzpatrick

(Dublin Central): I agree with what Deputy O'Malley said about the age of 55 years. A farmer may wish to transfer his farm to his son and it is very easy for him to have a son or daughter of 30 years of age when he is 55 years of age. Quite often sons get married today at 21 years of age. A man aged 44 or 45 years who owns a business could have a son or a daughter of 21 or 24 years of age. This provision will affect the transfer of property. Because a person has not attained the age of 55 years he will not qualify for the threshold contained in the section of £150,000.

I cannot see where any abuse would lie if a man transferred his property at 50 or 45 years of age. I do not think this is a good section. I am not sure that it will operate to the benefit of the country at large. You should be able to transfer your assets at a reasonably young age. People are now getting married much younger than they did 20 years ago, or even five or six years ago. I would say that the average today is 25 years. If I am reading the section right, inserting "who has attained the age of 55 years" will be a disadvantage to a family. They will not be able to transfer their assets when their children want to settle down and get married. I think this is a bad section. Maybe I am wrong. I hope I am wrong.

Major de Valera

I hope the questions I am about to ask will not indicate too clearly that I was not in the Chamber to hear some of the earlier remarks on the concatenation of sections. I do not want to put the Minister to the unnecessary trouble of repeating anything he has said. I realise that he has had a pretty gruelling time. Taking this section on its own and following up the points made by my colleagues here, what is the purpose of having this age qualification in this section at all, if you look at it from a policy point of view? If this question has been answered already by the Minister when I was not here, the Minister's reply to that affect will amply satisfy me, but perhaps I might be allowed to make my point on the section all the same.

Reading the section, the purpose of it is to ensure that a family or farm can, so to speak, remain viable within the family. I think that is the social purpose of the section, and if that is the purpose of the section, having regard to its provisions, why is an age necessary? If it were a transfer above on the tree of inheritance. I could possibly see a reason, but this is tightly confined to a disposal to children, and so tightly confined indeed is it that the Minister found it necessary to bring in an amendment to meet the cases of what I might briefly describe as deserving nephews and nieces. If this is the policy of the section, I wonder what is the point when you cannot go back up the tree again. I freely concede to the Minister that if the relationship were such that I could transfer to a son or daughter and then have it transferred back to me at a later date, there is a great need for an age qualification but it is going to be a one-time disposal. It may not be disposed back and get the benefit of the section. If this is so why have the age of 55? What difference does that age make?

This is Deputy O'Malley's first point and he was going a long way in concession, unless I completely misstated the point, in asking for the special provision for a widow, which I think is a separate thing and should be considered. I am not to be taken as in any way complicating the argument in favour of the widow, but taking my colleague's point on the age of 40 or 45, I ask myself the question: why 55 and not 45? Deputy Fitzpatrick made the point about the son and there may be urgent reasons for doing something of this nature. The policy of the section, taking the extended meaning of the word and making the point again that the section is so tight that the Minister found it necessary to bring in the very proper amendment which he brought in to meet his original intention—that is a proof that the section is extremely tight—you can have this kind of situation which Deputy Fitzpatrick mentioned.

A man of 45 has a farm or a business. He has a son and the crisis arises. I will go a little further than 45 and take 47 or 50. There is a boy in his early twenties who wants to make up his mind as to where he is going and the father has to face the difficult problem of how he is to ensure that the boy is going to take on, because, the boy has to be sure of his own future too. In that case the only practical way to achieve the social intention of the section is for the man to dispose of it, and why therefore should there be a difference in that case from the case of the parent who has reached the age of 55? That reinforces Deputy Fitzpatrick's point. I do not want to tire the Minister on this. I realise that he has had a gruelling time and I do not wish to delay the debate, but I am at a loss as to the reason for an age qualification at all in the section, but there may be good reasons for it. We all know that the Minister and his advisers do not put provisions in a Bill just for the fun of it. There is usually a good reason, but sometimes these reasons may be so much for the sake of greater caution that they are unnecessary or even embarrassing. I am not quite sure whether I have made a really intelligent point on this but I would like to make it in that way. If the answer has been given, I do not expect a repeat.

Mr. R. Ryan

The question has not been posed as specifically as the Deputy has posed it. I refer to the White Paper on Capital Taxation published February 1974 where the thinking behind the section is set out and where we deal with possible exemptions and reliefs for sales within the family of farms and family businesses on retirement. That is the element. Quoting from the White Paper:

In order not to place any obstacle in the way of transfers of farms or buildings within the family provision could be made that the disposal of farms and family businesses for a consideration of up to, say, £150,000 would not attract liability to tax.

The idea is to deal with a situation which is not at all abnormal, which is quite usual of people who coming to the autumn of their years are concerned with the disposal of property within the family. The likelihood of that happening is, I think, less the younger the parent. The case has been put—if somebody feels like doing it at 45, why would they not get the same concession? We are dealing with the normal run of cases—I should say the almost abnormal run of cases—to choose, 55 which in Irish circumstances is abnormally young and to bring it in at this level may be an encouragement to people to use it. It is also, incidentally, applicable but uniquely this year for the first time in relation to the EEC farm retirement scheme of 55 and also the chosen year to encourage people to avail of the EEC scheme, but it is basically a scheme to facilitate people in the normal age or expectation or operation of retirement, and to ensure that if they are receiving cash, as they may in certain cases receive cash for what they are disposing of, that that cash which they will presumably be putting aside for the purpose of purchasing an annuity or some investment to give them an income will not be touched unfairly by the capital gains tax. That is the thinking behind it and I suggest that by coming to 55 years of age it is a movement in the right direction. We shall see how it operates in practice and I am not saying it will be the last word. Maybe the time will come when we will consider that gifts can be given by parents at any age to children without having any capital gains tax involved.

Mr. T.J. Fitzpatrick

(Dublin Central): If the Minister did not put in 55 years of age what would be the consequences?

Mr. R. Ryan

Liability to tax would probably be less at a younger age because the property would not have been held sufficiently long to accumulate capital gains.

Progress reported, Committee to sit again.