Dáil Éireann debate -
Wednesday, 2 Jul 1975

Vol. 283 No. 2

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

Debate resumed on amendment No. 10:

In page 12, lines 19 and 20, to delete "(variations on appeal being disregarded for this purpose)"

—(Deputy Colley).

Mr. Colley

Before we adjourned I was pointing out in relation to this amendment that it may, in fact, not be necessary if the Minister can clarify a reply to a question which I put to him on the Committee Stage. That question is dealt with at column 747 of the Official Report for 18 February, 1975. The question that I put to the Minister was:

Paragraph (c) of subsection (1), deals with the situation in the event of compulsory acquisition. Lines 19 and 20 carry the words, in brackets, "variations on appeal being disregarded for this purpose". I want the Minister to clarify whether this subparagraph determines only the time of disposal. If there were variations on appeal in the amount of the compensation would these be taken into account in computing the gain or loss or, since the date of disposal is the date on which the compensation is agreed, and disregarding subsequent variations, is the gain based on the figure originally agreed?

In other words, if this section is merely determining the date of the decision as to when there was disposal and acquisition it may be that the words in brackets which I propose to delete are not causing any difficulty. If, however, the determination of that date can affect the amount of capital gains tax being charged then I think the amendment is necessary in so far as you can have a situation in which a figure for compensation in compulsory purchase proceedings was determined, we will say, by an arbitrator and you could subsequently have an appeal as a result of which that figure was varied. As I read the section it says that the date of determination by the arbitrator is the date of disposal and acquisition of the property. If that is all it says I do not think there is any problem, but if as a result of that date being taken as the date of disposal and acquisition the value of the property on that date, in other words the value fixed by the arbitrator—at least, that would be the normal proceeding—is the one that is then used to assess capital gains tax, it would seem to me that the words in brackets should be deleted because you could have a different value arising on the result of the appeal and capital gains tax could be assessed on that.

It is true that in most cases the figure fixed on the appeal might be higher than the original figure and therefore benefit the taxpayer but I do not think that this is, strictly speaking, very relevant. What is relevant is that there be a clear machinery laid down whereby the amount of tax to be levied is certain, that there is no ambiguity attaching to the method by which it could be done and for that reason it should be quite clear that the date on which the disposal and acquisition is deemed to take place, if it has any relevance to the amount of the compensation eventually fixed for the purpose of assessing the tax, should be the date on which the final determination of the amount of compensation is made.

Mr. R. Ryan

If the date was to be the date recommended by Deputy Colley it would be open to a liable party to engage in procedural delay so as to bring about a date which might suit his own convenience more than the earlier date. We are providing that the sum is varied after first determination by some appeal procedure or otherwise. The time of disposal remains unchanged even though the amount of the consideration might be changed. An example would be where compensation is determined by a court of first instance and then varied on appeal to a higher court. In such a case the appropriate timing of the disposal would be the determination of the value in the court of first instance.

Mr. Colley

Could the Minister say if the determination of the date will in any way affect the amount or, in other words, can the date be determined under this but the amount be determined by reason of the ultimate decision, say, in court?

Mr. R. Ryan

The ultimate decision—the value consideration—will stand on its own, and it will be deemed to have passed on the day of original determination.

Mr. Colley

But the tax will be assessed on the ultimate figure fixed?

Mr. R. Ryan

Yes.

Mr. Colley

Irrespective of what was fixed on the date of disposal?

Mr. R. Ryan

Yes.

Mr. T.J. Fitzpatrick

(Dublin Central): If there were a long appeal, it is the original date on which it would be determined?

Mr. R. Ryan

That is right.

Mr. T.J. Fitzpatrick

(Dublin Central): The case could be very long drawn out especially in the compulsory acquisition of property. I could certainly see it taking four or five months before a final decision could be arrived at between the public authorities and the private property owner, but I presume he will be subject to capital gains tax whenever the first decision was taken.

Mr. R. Ryan

But no tax will be collected until the issue is finally resolved.

Mr. Colley

That is not what the Bill says.

Mr. R. Ryan

It cannot be until the value is determined, and the value cannot be determined until the proceedings are finalised.

Acting Chairman (Mr. Pattison)

May I remind Deputies that we are on Report Stage and they may speak only once on Report Stage.

Mr. T.J. Fitzpatrick

(Dublin Central): This is really a point of information. We know there can be quite a delay and I was wondering if the question of interest would arise.

Major de Valera

The words "otherwise determined" are used and the reference is to compulsory acquisition. I take it what the Minister has in mind is the acquisition of land either by a local authority or by the Land Commission. If he stuck to the word "agreed" I would ask whether the phrase in parenthesis, which is sought to be struck out by Deputy Colley, has any meaning at all. After the word "agreed" you have "or otherwise determined". "Otherwise determined" in opposition to the word "agreed" simply means that the court, the arbitrator or someone has determined and it seems to me, therefore, that what is most likely to happen is that the court of first instance, so to speak, whether the Land Commission or the local authority through some machinery or other, determines and then a price is fixed. It seems to me the Minister is attaching gains to that. The very phrase visualises an appeal. It could be an appeal to the Appeal Commissioners where the price would be revised. It could be an appeal reopening the whole matter on a point of law. I am at a loss to know why this phrase is put in because the compensation is not really determined until after the appeal and, if you go on the first instance, it is as likely to hit the Revenue as it is to hit the taxpayer because in many cases of appeal what happens is the price originally determined is confirmed or else the variation is in favour of the appellant. If it is in favour of the appellant then the price goes up and the Revenue lose. I have a feeling that there is some purpose behind this phrase which we have not quite grasped. I am not accusing anyone of hiding anything.

Mr. R. Ryan

I am not permitted to speak at all at this point, having spoken once, but the value is determined on appeal.

Major de Valera

Then what does the phrase "variations on appeal" mean? I am sure the Acting Chairman will not object to the answer to that: "variations on appeal being disregarded for this purpose" can only mean a revision on appeal and, therefore, it is not the appeal price; it is some original price that is concerned. Take a concrete case: if the court of first instance, the tribunal or the authority fix the price at £100,000 and capital gains attaches to the person for whom there is a disposal then if, on appeal, the appeal tribunal, or whatever it is, awards £150,000 there is an extra £50,000 which seems to me to be a present under the section from the Revenue Commissioners. Timeo danaos et dona ferentes: I would like to know the purpose of this parenthesis. It does not altogether make sense to me.

Mr. R. Ryan

What the section says is a variation in the value on appeal. It does not change the time of disposal. This section deals with the time of disposal.

Mr. Colley

While what the Minister says in one sense makes the meaning of the words in brackets more tolerable, at the same time I think he is doing here the same thing as he was doing in a previous amendment to which we referred. What he is doing is saying we deem the date of disposal and acquisition to be under this section a particular date—in this case the date of first ascertaining the figure for compensation in compulsory purchase. That is the date of disposal and acquisition. We go on then and, if there is a variation on appeal subsequently, and it could be a very long time subsequently, and if, as a result, which is the normal thing, the figure of compensation is increased the Revenue Commissioners will assess capital gains tax on the increased figure, not on the figure fixed on the date on which there is deemed to be disposal and acquisition. That is what the Minister says is intended, but it seems to me that that is not what should be done and it is not what the Bill says should be done because, if the disposal and acquisition take place on a particular date, then under other sections it is clear that liability to capital gains tax arises in that financial year and can only be assessed on the first figure. But a revised figure might emerge as a result of court proceedings or a further hearing by an arbitrator and it might be a couple of years later that the revised figure on which the Minister says the tax will be based will be available. It will not be available in most cases in the financial year in which the disposal and acquisition is deemed to take place. Therefore, if the provisions of the Bill are to be followed, as they should be, the Revenue Commissioners would be obliged to collect capital gains tax on a figure which is subsequently going to be changed, most importantly, on a figure which has not been received by the owner of the property being compulsorily acquired. This is the aspect that worries me most.

A similar situation arose on another amendment and the Minister's justification in each case appears to be that if he does not do it, people could string out the date so that it would fall in the time that would suit them. As I pointed out before, that may be a laudable ambition, but it is not sufficient to justify a situation in which, under this Bill as it stands, people will become liable for capital gains tax before they have received the gain. In my view, it is not right for the Minister to say that that is not his intention, nor that that is what the Revenue Commissioners will do, because the Bill says what they are to do. While it would be unreasonable, and the Minister freely concedes it, for the Revenue Commissioners to seek to obtain tax on a gain which the taxpayer has not got, that is what the Bill obliges them to do.

I do not regard that as a satisfactory approach in this or in any other matter, in the Bill. We have done our best to try to get some reality and clarity into these provisions. We raised it on Committee Stage and we raise it again now by way of amendment, but the Minister is adamant. He wants to hold on to the words and try to operate this procedure on a basis which is clearly inequitable and without reality. If he chooses to do that there is not very much we could do, except to have drawn attention to the problem. The Minister, with his eyes open, is deciding to do it in a way which, if the Bill is to be enforced as drafted, will produce the inequities of capital gains tax being sought from a taxpayer who has not made a gain. We do not go along with that, but apparently the Minister does.

Amendment put and declared lost.

Mr. Colley

I move amendment No. 11:

In page 13, lines 33 and 34, to delete "or may".

This matter was also referred to on the Committee Stage. The point at issue is that section 12 (7) provides that no relief will be given in respect of a loss sustained under this capital gains tax legislation if, and so far as, relief has been or may be given in respect of it under the Income Tax Acts. The provisions that the taxpayer should not get relief in respect of losses twice is obviously clear, and there can be no dispute about it.

This amendment seeks to ensure that relief can be got under the capital gains tax legislation if it has not been got under the Income Tax Acts, as distinct from the provision here that it cannot be given under the capital gains tax legislation if it has been or may be given under the Income Tax Acts. In other words, there may be some entitlement to relief under the Income Tax Acts but it has not been given. It may not even have been sought or claimed because the taxpayer might not have been aware that he was entitled to claim under the Income Tax Acts. Nevertheless, under this provision as it stands, no relief can be given under the capital gains tax legislation.

The purpose of this amendment is to provide that if relief has been given under the Income Tax Acts it cannot be given under the capital gains tax legislation. Alternatively, if it is available under the Income Tax Acts but is not given, it may be given under the capital gains tax legislation.

I referred to this on 13th May as was reported at column 1656 of the Official Report:

I have indicated the circumstances in which considerable hardship could ensue. I do not believe it is impossible to devise a method of re-wording subsection (7)——

I must admit that what I am saying here refers to this and the next amendment.

—in order to ensure that some relief can be given in cases of the kind I have indicated. I assume the Minister's general attitude is that he would not object to a relieving provision of this kind provided it would not be abused.

The Minister said:

I will certainly further consider the arguments put forward by Deputy Colley but I am sure he will accept that the only point where one can be certain that a person will not make a future capital gain is on death.

The point refers to the next amendment rather than to this one. The point in this amendment is simply to ensure that if relief had not been given under the income tax code, it may be given under the capital gains tax code. That seems a reasonably straightforward proposition and I would ask the Minister to consider the arguments made on the last stage and today. He did not deal with this in any detail on Committee Stage and perhaps he will do so now.

Mr. R. Ryan

I take it that we are in agreement that allowances should not be granted twice?

Mr. Colley

Agreed.

Mr. Ryan

If we agree on that we must leave the section as it is and not delete the words. The effect of the exclusion which Deputy Colley seeks would be that any gain on an asset chargeable to income tax could in certain circumstances be involved in a capital gains situation. For instance, with assets which might in certain circumstances be capital—land—it might be to the benefit of the taxpayer to endeavour to take the asset outside the income tax range and have it regarded as capital asset in order to get relief for a loss. This would occur, for instance, where there was no income and there would be no likelihood of a future income to set the income tax loss against. It would be to the advantage of the taxpayer to swing the loss over from the income tax area to the capital gains area. To prevent this happening, it is provided that so far as relief has been, or may be, given in respect of these losses under the Income Tax Acts, it shall not be given against capital gains.

The use of the phrase makes it perfectly clear that this device is not available. If we were able to delete the words "or may" we would be leaving an area of uncertainty, if not providing actual temptation to people to adjust their assets situation so that it could be transferred from the income tax area to the capital gains area.

Mr. Colley

In the normal way would the income tax relief not be more valuable than the capital gains tax relief?

Mr. R. Ryan

Assuming that the taxpayer was paying 35p or upwards that would be so. In a situation where there was no income or where the income tax would be at a lesser rate, obviously the 26 per cent would be the same in either case, but for people who might be so arranging their affairs as to make a capital gain and have a loss set off against a gain and not have a recurring income, it could be to their advantage to manipulate the system so as to get credit for the capital loss. I do not think that would be appropriate.

Mr. Colley

If a person had no income he would not be paying any income tax. All he would be getting under this would be relief at 26 per cent for losses.

Mr. R. Ryan

Quite a number of entrepreneurs have made a very good living out of capital gains and no income.

Mr. Colley

That is a nice trick if you can work it but it is not all that easy to work.

Mr. R. Ryan

Some people do not do badly on it.

Mr. Colley

The Minister may be somewhat blinded in what he is doing here by his concern to ensure that a taxpayer will not get away with something. It seems to me that, if a taxpayer has no income, or will have no income, the only relief he can claim would be against capital gains tax in respect of losses. The most that can be worth to him is 26 per cent. In effect the Minister is saying: "If you are in a position where you have made a capital gain and have had capital losses but you have no income, or you will have no income, that is too bad really. You may have had losses you could have claimed under the Income Tax Acts but, because you have no income, you can forget about that. You will not get the benefit of it, nor will we allow you to claim it under the capital gains tax code, although otherwise it would have been available under the capital gains tax code." That does not seem to me to be the right approach.

It is an approach which is coloured by a particular view of a possible abuse situation which I would think would be extremely rare. A case in which that kind of person will be caught is not only rare but, if he applies his ingenuity, he will see it does not happen to him. One could visualise a situation in which a person who is genuine will be caught although that will be fairly rare too. The person who will be genuinely caught under this is not the person the Minister is trying to get at. He is the one who will suffer. We have drawn the Minister's attention to this and, if he persists in going ahead with it, we cannot stop him. We have pointed out to him what the consequences are. If that is what he wants to do that is what he will do. The responsibility for doing this is on the Minister's shoulders and those on his side of the House, not on this side.

Amendment, by leave, withdrawn.

Mr. Colley

I move amendment No. 12:

In page 13, after line 34, to add the following:

"(8) Provided however that the Revenue Commissioners on application to them may allow a person to carry forward capital losses against capital gains which may or have already accured to him, if, in their opinion the request is reasonable having regard to all the circumstances of the case."

I referred to this amendment obliquely before. It was raised on the Committee Stage discussion on this section. If I may quote from what I said on 13th May, 1975, as reported at columns 1654-1655 of the Official Report I can set out fairly succinctly what is involved in this amendment. I said:

Is it not clear under this arrangement that a person may be taxed on gains and, within a short time afterwards, may suffer serious capital losses? For instance, on a forced disposal of an asset. Is there not a case for saying that there should be provision to carry back losses for at least two years preceding the assessment? Effectively, capital gains tax is, by its nature, a long-term tax rather than an annual tax although it is treated here in a year of assessment. I suggest to the Minister that there could be cases of considerable hardship where a person has become liable to a tax on a gain and has paid it but soon after suffers serious capital losses. As I understand the subsection in those circumstances such a person may not get any benefit in respect of those losses unless, at some time in the future, he manages to bring about a capital gain which may never happen. Difficult circumstances can arise and I wonder whether it is essential, from the Minister's point of view, to restrict the carrying back of losses entirely as is done in this subsection?

The Minister in replying to my summarising of the position said he would certainly consider the arguments put forward. He added:

I am sure he will accept that the only point where one can be certain that a person will not make a future capital gain is on death.

This amendment is quite limited. It says: "Provided however that the Revenue Commissioners on application to them may allow a person to carry forward capital losses against capital gains..."

Mr. R. Ryan

May I intrude for a moment? Is the Deputy right in the direction of the movement in his amendment? Does he mean to carry back? That is how he has been arguing.

Mr. Colley

The Minister is right. It should be "carry back" rather than "carry forward". The Minister made a passing reference this morning to the very understandable fact that he did not have much opportunity to study my amendments because they were put in yesterday afternoon and last night and he was otherwise engaged. From my point of view the position has been that I have been engaged in this House on the Capital Gains Tax Bill Committee Stage followed immediately by the Committee Stage of the Wealth Tax, followed immediately by the budget. The Minister was otherwise engaged and another Minister handled the Wealth Tax Bill. The Minister has available to him the resources of the Civil Service. Those resources are not available to me. I was obliged to await the Minister's own amendments to see what amendments, if any, I wanted to put down. The time available to me to do this was rather short. It has happened—and it may happen again in some later amendments—that there are one or two words in my amendments which should not be there. I am saying that in parentheses.

Mr. R. Ryan

I will not take advantage of the Deputy. I was endeavouring to help him.

Mr. Colley

The Minister is quite right in saying it should be "carry back" rather than "carry forward" in the amendment. Reading it as it should be written the amendment would read: "Provided however that the Revenue Commissioners on application to them may allow a person to carry back capital losses against capital gains which may or have already accrued to him, if, in their opinion the request is reasonable having regard to all the circumstances of the case." That last phrase is crucial to this matter. I admit freely that it raises objections, in the sense that it gives very considerable discretion to the Revenue Commissioners. On the other hand, it recognises the difficulty the Minister faces—that this kind of provision might be open to abuse and to being used for the purpose of avoiding liability to capital gains tax.

It seems to me that cases of serious hardship can arise in the circumstances I have outlined. I am not speaking here—as the Minister was indicating on the last amendment— about somebody virtually making his living on capital gains. I am speaking of somebody who has a capital gain, pays tax on it, subsequently suffers capital losses and, because he is not in this line of business, may never again have a capital gain. In those circumstances there can be hardship. It seemed to me that to give the Revenue Commissioners power, where they belive it is reasonable, having regard to all the circumstances of the case, to allow the carry forward of losses was probably the only practical approach to this problem, where there can be genuine cases of hardship but where also there can be danger of abuse.

It seems to me that if one is endeavouring to meet the cases of hardship but prevent abuse one is going in the right direction in meeting those difficulties by my amendment, subject to the changing of the word "forward" to the word "back". Giving this discretion to the Revenue Commissioners fairly effectively closes the loophole that would lead to abuse and that would, at the same time, provide the possibility that the genuine case of hardship could be relieved. Therefore, subject to that change in wording from "forward" to "back" the Minister would find is possible to accept this amendment.

Mr. R. Ryan

I regret to say that I am unable to accede to the Deputy's request. He makes a very fundamental suggestion here which, if acceptable under the capital gains code, for similar reasons, would have to be allowed under the income tax code with very great complexities and difficulties as a consequence.

The concept of carry-back of losses obviously is very much wider than capital gains alone. Were we to allow it under either or both codes we would never reach finality in assessing liability to tax. The only situation in which carry-back of allowable losses is provided is in respect of death. The reason it is allowed in respect of death is that, obviously, death means the termination of the possibility of making any future capital gain; one cannot take one's money with one; one cannot take one's assets to another place; one cannot make capital gains, nor suffer losses.

Mr. T.J. Fitzpatrick

(Dublin Central): There will be nothing left to carry when these Bills go through.

Mr. R. Ryan

It will be much cheaper to live and much cheaper to die in future. That must be a considerable relief to people lucky enough to be affected by any of these taxes.

Similarly, in the income tax code, losses can be carried back only on the termination of a business. Therefore, in relation to capital gains and losses, losses can be carried back only on the termination of the business of living. There is no other way in which we can treat them. I am sure Deputies would accept that were we to allow losses to be carried back for capital gains tax purposes, there would be a demand which could not be resisted to apply the same principle to income tax.

Mr. Colley

I would not accept that proposition at all because I think they are quite different.

Mr. R. Ryan

It would be of great strength to me to know that I could quote Deputy Colley if people made such representations to me because I am quite certain representations would be made instantly once the principle was to be yielded under the capital gains tax code. Also it would leave the way wide open to abuses, to avoidance devices of one kind or another, to artificial construction of losses. It seems to me to be unworkable and undersirable. I should like to point out that there is no limit to the carry-forward of losses in a person's lifetime. As long as one lives there is always the possibility—and, in most cases, the probability—of the making of further gains. Therefore, past losses can be written off against such further gains but no hardship can arise. If death should intervene before the making of the gain and so get relief for a loss incurred already, then we can go back three years to set off the losses against gains.

It seems to me that, in the Bill, we have achieved a code which is reasonable and workable. To accept the amendment would be to create a great deal of confusion, to open the way to abuse and to provide an escape which in the overwhelming experience of people would not be necessary because the losses can be carried forward indefinitely against all future gains. That is what is really significant.

Ruairí Brugha

I can understand that the Minister would be reluctant to allow five, ten or 20 years carry-back. I have not got the record here but I have a recollection of asking the Minister if one had a loss in one year could one recover in the second year?

Mr. R. Ryan

One carries forward the loss against the gain the second year but one cannot carry it back.

Mr. Colley

Provided one has a gain.

Mr. R. Ryan

Indeed, even ten years afterwards, one can still use the loss against any gain.

Mr. T.J. Fitzpatrick

(Dublin Central): That is any future gain?

Ruairí Brugha

Bring one's loss against any future gain?

Mr. Colley

If one has a gain.

Ruairí Brugha

One can?

Mr. R. Ryan

Yes. I am being more reasonable than Deputies suspect.

Ruairí Brugha

I was merely wondering if one could work it just for one year, loss or gain, in order to get over any difficulty. I can understand that one could not be adding up a lifetime and saying: well, in 20 years at £500 per annum one is entitled to £10,000; that would not seem to fit in with what the Minister would like. Perhaps the Minister could allow one year, one way or the other.

Mr. R. Ryan

If one made a gain, say, in the first month of the year and a loss in the last month, that loss could be set off against the previous gain so, to that extent, there is a carry-back. But to carry it back to a different tax year would create untold difficulties.

Ruairí Brugha

How can one go from one month into the following year? That would be a different tax year.

Mr. R. Ryan

I am talking about the tax year, the year of assessment.

Ruairí Brugha

It seems to me it would be simplier if the Minister allowed the year to go one way or the other, plus or minus.

Mr. Colley

The Minister has put forward two arguments against this amendment. The first is that he says that acceptance of the principle of the carry-back of losses in relation to capital gains tax would lead, inevitably, to its having to be conceded in the income tax code. I indicated, in an interjection, that I do not agree at all with that proposition.

I shall now elaborate a little on that objection. The capital gains tax code, of its nature, is a long-term tax. Although it is treated here on the basis of a year of assessment, like income tax, in fact it is a long-term tax. There are many people who never in their lives will have a capital gain, or a capital loss in terms of what we are talking about here. There are many people also who will have perhaps one or two such instances in their whole lives, whereas the great majority of people have an income.

That is one of the fundamental differences between the two codes. Secondly, in so far as the person sustains a capital loss and is not allowed then to carry it back, if he is one of those people who probably will never again have a capital gain, that is just a permanent loss as far as he is concerned. If he happens to be one of those people who is engaged in transactions which regularly produce gains or losses he does not have a problem at all as he can carry this all the way. If he is one of the people who will not have a capital gain ever again it is a loss for him forever. It is written off.

Ruairí Brugha

He cannot carry gains forward.

Mr. Colley

If he will never have a gain in the future then if he sustains a loss it is a write-off as far as he is concerned. If he does not have a gain in the future he has nothing to write it off against. I believe that is not the kind of man the Minister should be trying to penalise in this legislation, and it is not the kind of man who should be asked to bear this kind of loss simply because he is a person who sustains a capital loss and never again will have a capital gain. He should not be put in a category which will penalise him far more than the person who is engaged in speculation in property and so on. He will not have this problem at all.

Fundamentally, there is a distinct difference between the income tax code and the capital gains code. A further argument in that regard is that while a man may never have a capital gain again it is a most unusual person who will never have an income again. The Minister referred to such people earlier and clearly he visualised people who had considerable wealth and perhaps, in effect, would derive their income from capital gains. Such persons are rare enough but they are not the kind of people we need be so concerned about.

The people who will have no income in the genuine sense and who will have no capital gains or anything else do not really exist, because if they have no income and they have nothing else they will die of starvation. As far as the Minister is concerned the argument of such close similarity between the income tax code and the capital gains tax code, that one would have to allow the same provision for carry-back of losses in income tax as in capital gains, just does not stand up. I do not think it has any real validity.

That was the first argument the Minister made. The second one was that to allow this would mean that the whole system was open to abuse. The Minister did not elaborate, as I thought he would, on the difficulties that perhaps might face the Revenue Commissioners in dealing with this if this amendment were accepted. He drew attention to the fact that the allowance of carry-back of capital loss could only arise if the amendment were accepted, if a request were made to the Revenue Commissioners and if in their opinion the request was reasonable, having regard to all the circumstances of the case.

There could be some difficulty for the Revenue Commissioners in administering that. Nevertheless it is not true to say that with such a provision it is wide open to abuse, as the Minister suggested. After all it is totally under the control of the Revenue Commissioners. If they consider that the request is unreasonable they do not have to grant it. That is what the amendment says. On both grounds advanced by the Minister, that of the inevitability of conceding this in regard to income tax and the danger of abuse, I do not think there is any real validity in the arguments he puts forward for the reasons I mentioned.

I believe failure to accept this amendment can mean serious hardship for those who cannot afford it, not to people engaging in speculation, deals or things that will leave them liable to capital gains tax and in a position to obtain capital losses and to claim them. They are not the kind of people who will be affected by this. The people who will be affected are the kind of people I described where serious hardship can arise. This amendment has sought fairly to meet the situation of avoiding that hardship without providing an opening for abuse by placing the whole thing under the control of the Revenue Commissioners at their discretion.

I must say, that being so, that I feel it is unreasonable of the Minister to refuse to accept this proposition, to which we referred on Committee Stage, and to which his attention was drawn. He has had the opportunity to think about it since then and he has also had the opportunity to think about it again since this amendment was put down. It is unfortunate that he refuses to accept it. I believe hardship will be suffered as a result of his refusal. I can only say again that we have tried to do what we believe to be right, and the consequences of failing to do that rest on the Minister.

Question put: "That the amendment, as amended, be made."

The Dáil divided: Tá, 57; Níl, 65.

Tá

• Allen, Lorcan.
• Andrews, David.
• Barrett, Sylvester.
• Brady, Philip A.
• Brennan, Joseph.
• Breslin, Cormac.
• Briscoe, Ben.
• Brosnan, Seán.
• Browne, Seán.
• Brugha, Ruairí.
• Burke, Raphael P.
• Callanan, John.
• Calleary, Seán.
• Carter, Frank.
• Colley, George.
• Collins, Gerard.
• Connolly, Gerard.
• Cunningham, Liam.
• Davern, Noel.
• de Valera, Vivion.
• Dowling, Joe.
• Fahey, Jackie.
• Farrell, Joseph.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• Flanagan, Seán.
• French, Seán.
• Gallagher, Denis.
• Geoghegan-Quinn, Máire.
• Gibbons, Hugh.
• Gibbons, James.
• Gogan, Richard P.
• Haughey, Charles.
• Healy, Augustine A.
• Hussey, Thomas.
• Kenneally, William.
• Kitt, Michael P.
• Lalor, Patrick J.
• Leonard, James.
• Loughnane, William.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• MacSharry, Ray.
• Molloy, Robert.
• Moore, Seán.
• Murphy, Ciarán.
• O'Connor, Timothy.
• O'Kennedy, Michael.
• O'Leary, John.
• Power, Patrick.
• Smith, Patrick.
• Timmons, Eugene
• Tunney, Jim.
• Walsh, Seán.
• Wilson, John P.
• Wyse, Pearse.

Níl

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

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

Question declared lost.

Mr. Colley

I move amendment No. 13:

In page 14, to delete lines 48 to 50 inclusive, and to substitute "for a consideration equal to their market value at the date of death; but".

The provisions of this section ensure that an asset passing to a legatee on the decease of another person is to be deemed to be taken by the legatee at the value at which the deceased acquired it. I gave an example of what can happen in this case on the Committee Stage and it is no harm to give it again. A farmer purchases a farm and farms it for 40 years. Then in his will he leaves it to his nephew. On his death, the nephew takes and farms it for another 30 years and then the nephew disposes of it. In that case the gain accruing to the nephew is deemed to be the price at which he disposed of it, less the price at which the farmer originally purchased it 70 years previously. This, of course, is a totally artificial gain and can lead to a liability altogether out of proportion to what anybody would visualise accruing under capital gains tax legislation. It can effectively eliminate and negative the reliefs which are provided in some other sections in regard to the disposal of a property on retirement, that is of a farm or business. In my view it is a major defect in this Bill that it can produce a situation of the kind I have described.

When I raised this on the Committee Stage the Minister said he had not closed his mind to the suggestion which I put forward and that he would be prepared to have a look at it between then and the Report Stage. Since he has no amendment in to deal with the matter I am assuming that he has decided not to do anything about it. If he has decided not to do anything about it I think it is a serious matter and that it will leave this Capital Gains Tax Bill very defective, defective in a way that will affect many people who would not have expected to be affected by it, certainly to any major degree, and it will affect people who are not of the kind that ought to be affected by capital gains tax legislation. I have repeatedly made clear my view that capital gains tax legislation ought primarily to be directed at what is commonly called a speculator. I do not accept the proposition involved in this section which I am seeking to cure in this amendment that a value which is built up in a business or in a farm over many years ought to be subjected to capital gains tax. In the example I have given quite clearly what is going to happen is that capital gains tax will be applied to a gain which is deemed to have accrued over a period of 70 years simply because the Minister feels that there may be an opportunity for some people to escape liability or reduce their liability under capital gains tax if he does not do it this way. This is another example of the innocent being punished for what I might call the sins of the guilty though those two terms "sins" and "guilty" in this context are going too far. In effect the people who are really going to be penalised, who are really going to suffer, are those who have over the years by hard work built up either a farm or a business. The amendment I am proposing is to provide that:

the assets of which a deceased person was competent to dispose shall be deemed to be acquired on his death by the personal representatives or other person on whom they devolve for a consideration equal to their market value at the date of death.

That is that the legatee, the nephew in the case I mentioned, would be deemed to acquire the farm at its value on the date he received it and then if 30 years later he were to dispose of it the gain which he was deemed to have made would be calculated from the date of its value at the time he acquired it until the date of disposal and whatever figure at which he disposed of it at that date. This, adding on to that value the value of the asset as it has increased over a lengthy period back to its date of acquisition by the deceased person, is producing what I can only regard as an artificial situation. It is worse than artificial and it is worse than simply distorting so that you get a liability for capital gains tax out of proportion as I have indicated.

It is grossly unfair to people who, as I said, have built up a business or a farm over many years. This is not the kind of thing that will trouble what is generally called the speculator who is in and out for a fairly quick profit. This will not trouble him at all but it will trouble the genuine case of the farm or business of the kind I have described.

I admit that to take 40 years occupation in the example I have given by the farmer and then 30 years by the nephew, may be a bit extreme but it is certainly not unknown and not uncommon. Even if the periods involved were much shorter the principle is the same, that in the case where the nephew disposes of the farm the increase in value of that farm over 70 years is deemed to be his gain.

I do not think that that proposition really can be justified as fair and reasonable and I do not think that a danger of abuse can justify that kind of treatment of the genuine case. If the Minister really wanted to cover the genuine case and prevent abuse he could have brought in an amendment which would in some way limit the operation of the kind of provisions that I am seeking in this amendment. He did not do that. So we can only assume that the Minister thinks that in the situation I have described where the farmer farms for 40 years, leaves the farm to his nephew who farms for 30 years and then disposes of it, it is a reasonable proposition that he is deemed to have a gain over the period of 70 years. I do not think it is a reasonable proposition and for that reason I am putting forward this amendment designed in a case like that or in the case of a business to ensure that you will not get that kind of artificial distorted, and in my view unjust result from the application of the section as it stands.

Major de Valera

I hope the Minister will not take it amiss from me when I ask this question: Has the Minister really had time to examine this Stage of the Bill himself? I know that during the Committee Stage he was genuinely anxious to make the best of the Bill and he did on a number of occasions undertake to look into points. I have this amount of sympathy with the Minister. I have the feeling that he just has not been able to reach on it and that he is now in the position of, so to speak, having to talk to his brief.

Mr. Colley

May I interject to say that it would be very understandable if he did find himself in that position?

Major de Valera

That is what I am trying to say to the Minister. It would be most understandable. It shows the problem of making this House operate. What I am saying to the Minister is, if this is his position I do not want to tax him with what I believe to be his genuine efforts on Committee Stage to meet the points that were made but I do find that on this Stage he is in a different position. Having made that remark, we should try as hard as possible to help the Minister to get into a position of command on the Bill again.

If I understand the matter aright, the Minister did appreciate the point which Deputy Colley and we are making and he had a certain amount of sympathy with it. Deputy Colley mentioned an extreme case but you can take a case that is less extreme. Supposing that the Act had come into force, say, in the year 1960, approximately 14 years before what I may call the base date now. If somebody reviews that period up to say, the time the present Minister took office he will find that it was regarded as a pretty normal period in economics, that there was a very big inflation in the value of land and, therefore, if you were to take a period like that, not the present situation at all, you would find that if somebody had acquired lands by purchase and then by death the lands devolved in that period and finally you come to the position where the nephew got the lands, automatically, without any element except the normal working of economics, there has been a gain that is going to be charged against exactly the type of person for whom the protections that the Minister has provided in other Bills have been built in.

Surely there is a basic contradiction in the whole approach to this capital taxation. It is all very well from the administrative point of view. An administrator sitting at a desk thinking out this thing in cold figures and thinking in particular of a class will not appreciate the point that I am bringing out here and that Deputy Colley has brought out, but it is very much a point for the Minister to appreciate and to care for.

So much for normality, but what have you got at the present moment? We have a situation that everybody is talking about where there is absolute rank inflation meaning complete depreciation of money values and a great increase in nominal price, and market value in nominal price. Over a much shorter period of time than the 10 or 15 years that I spoke of, let alone the 70 years that Deputy Colley mentioned, you can have significant impost on the very type of person who is singled out, and rightly singled out, by the Minister in other Bills and elsewhere for relief. This appears to me to show a contradiction in thought and to be leading to a form of confusion which will not help the community.

I raise again the question of clear thinking on this matter as to whether we are after revenue or whether it is social policy that is dictating this code of taxation. We seem to swing from one to the other as suits our arguments in the course of this debate, and I am not singling out the Minister in that. Perhaps I have done it myself. This is a clear instance, and we have had many, where we should ask ourselves what are we after in this section.

Incidentally, on that, I should say going beyond the terms of the whole code. Is the Minister looking for money? If he is then obviously he will get it wherever he can. If he is looking for money he will have very little sympathy with the taxpayer and he will take the money wherever he can get it. Here is a most iniquitous bit of taxation. If the whole object of this exercise is simply to bolster up the Exchequer, which is now running out of funds, that is one thing, but, if we are serious about the social aspect of it then this provision is ineffective. I think the Minister recognised that on the Committee Stage. I am not taxing him with this for the reason stated at the outset, but Deputy Colley has given an indication as to how that particular deficiency can be remedied. If one wants to get a good rake-off and provide for the future then obviously one should have as long a term as possible because then inflation and changing money values will work for the benefit of the Exchequer.

Is the Minister being primarily guided by the need to get in money? If he is, well and good. All I can say is that we object to going that far. If the Minister has a feeling, and he has made genuine efforts to show it in other places in this code, for the type of case Deputy Colley outlined, then he should either accept Deputy Colley's amendment or bring in something in the nature of a limitation which would ensure that the accrual gained would not get completely out of proportion because of the length of time over which the gain was accruing and because it accrued, shall I say, through the ordinary normal operation of monetary factors.

I have great sympathy with the Minister. What he is anxious to do in this Bill is to get at the person commonly described as a speculator. I do not like the word because it has now acquired a pejorative connotation which suggests something not quite above board. But there is much legitimate business done, part of which may be of great benefit to the community, in which legitimate gains are made in the short term through transactions in buying and selling. It is these that are the object of attention in this Bill. If that is what is involved, well and good, but then why not tie it to market values, as Deputy Colley suggests, over a reasonable period of years?

This amendment merits more serious attention than we might at first sight be prepared to give it. Deputy Colley's case may be, as he said himself, somewhat extreme, but the more moderate intermediate cases I have given would be commonplace. In any event I do not think we are getting after the right people and, as Deputy Colley said, this does not do a thing to stop me buying and selling. There is nothing to stop this brokerage business, if you like to call it that, this buying and selling at a profit. Call it speculation or whatever you like, it is not involved in this section.

There is one thing that might be said on the other side, and it is understandable. Naturally we have taken the base in April, 1974, or thereabouts. One is tempted at this stage to say: "Look, that is in the past. There would be no serious problem for the next five or six years because time cannot run any faster and no excessive gains will accrue over five or six years and there will always be time to mend the situation." I cannot accept that argument. Often things are established in a statute and once they are established they are quoted as precedents. The quick answer to objections is that this was done before in this, that or the other Bill, and this type of provision will be invoked in the future.

Coming back to the argument that seven years would have to elapse, that argument can be made and, on the wording of the section, the period could go back the whole way. The Minister is in a great hurry to get this Bill passed and we have agreed to give it to him by a certain date. I do not think we would object if the Minister wanted an opportunity of having another look at this. He has had to do a great deal of travelling in the course of his duties. Yesterday he had the courtesy to come in here and explain why he had to be elsewhere. We have sympathy with him. Now he might not accept the exact wording of Deputy Colley's amendment, but I have a feeling that, given the time, he would do something and I should like to think it is not too late to do something in this regard. A manifest injustice can easily arise in this particular case where the Minister has been careful to try to protect and where he has been anxious to take credit for his solicitude in that protection. On the other hand, the case he is so insistent on catching will not be affected by this and, for these reasons, I would urge the Minister to have another think about this whole matter.

Mr. Callanan

In my view there is a great deal of justice in Deputy Colley's amendment. I was surprised that the Minister had not done something about this before the Report Stage. We want to get at the "jobber" as he is called in my area but you will probably call him a speculator. It is very unfair to put him in the same category as the man who bought a parcel of worthless land at a low sum, reclaimed it, drained it, took the rocks off it and gave his years of sweat and labour to it. The same applies to the businessman. There is a man living near me who bought a bankrupt business and built it into one of the biggest businesses in the area. He did this through hard work.

As Deputy de Valera said there is nothing illegal about buying and selling. Through the years some men have gone to market in the morning to buy a beast and sold it later in the day at a profit. There is nothing wrong with that. If I were a Minister introducing a capital gains tax, I would be trying to catch the man who got the money very handy. I would like the Minister to change the Act so that those two types of people—the speculator and the farmer or businessman—would not be put in the same class.

Mr. R. Ryan

Deputy de Valera will be consoled to know that in my long travels I have often taken draft legislation and the reports of debates in this House with me for light reading. As the Deputy knows, the further one travels, the more time one has to think because there is no telephone——

Mr. Colley

I am sure the Minister also has other briefs with him.

Mr. R. Ryan

——or other intrusions which one gets when one is nearer headquarters.

Mr. T.J. Fitzpatrick

(Dublin Central): Is the Minister replying to this debate?

Mr. R. Ryan

No.

Mr. Colley

I reply.

Mr. T.J. Fitzpatrick

(Dublin Central): Can the Minister speak a second time?

Mr. Colley

No.

Mr. R. Ryan

That must be a great comfort to Deputy Fitzpatrick.

Mr. T.J. Fitzpatrick

(Dublin Central): Will the Minister answer questions?

Mr. Colley

Yes.

Mr. R. Ryan

Deputy de Valera is right. Deputy Colley portrays a horrific picture which might occur in the year 2045: when somebody dies in 40 years' time and 30 years later his son sells the property, he will have to pay capital gains tax on 70 years' gain.

Mr. T.J. Fitzpatrick

(Dublin Central): It might happen in ten years' time.

Mr. R. Ryan

He would be a bad and presumptuous legislator who would try to draft legislation now to cover the economic and social circumstances of the 21st century.

Mr. T.J. Fitzpatrick

(Dublin Central): Deputy Colley's amendment is very clear cut on this.

Mr. R. Ryan

Yes, and I shall show how this amendment, if accepted, would lead to an unjustifiable situation right away if it came into operation as Deputy Colley proposes.

The object of treating death as not being an occasion of charge for capital gains tax, together with the very high exemptions which will exist for capital acquisitions tax in the case of transfers within the family—which are the kind of transfers we as a Government undertook to protect—is to encourage the retention of moderately sized businesses and farms within the family.

Mr. T.J. Fitzpatrick

(Dublin Central): The tax is being deferred.

Mr. R. Ryan

That is the objective, Deputy de Valera wanted to know whether this was a tax collecting Bill or if it was endeavouring to bring about social improvements. It is doing both. We have always declared that to be the intention. That has been the thinking behind all capital taxation in other countries as well as here. It was the argument advanced for the introduction of death duties.

One would be foolish to look at capital taxation as a revenue collector. It could be made so, but the more effective it might be in that way the more unjust socially it might be. The more efficient it is in bringing about social justice and wise ownership, or generates the transfer of wealth, the less effective it will be as a tax collector.

The adoption of market value for capital gains tax, as suggested by Deputy Colley, would enable a legatee to sell the property he received soon after the death of a donor with no tax being charged. This would clearly defeat the object of the Bill. The use of the testator's base cost prevents the tax being avoided and discourages the sale of the property outside the family.

Mr. Colley

That is another form of death duty.

Mr. R. Ryan

No charge to capital gains tax will arise unless, and until, there is a disposal outside the family.

Mr. T.J. Fitzpatrick

(Dublin Central): Explain that to the people in the country.

Mr. R. Ryan

This treatment is obviously a lot more favourable than the treatment to which people were subjected, and would continue to be subjected, under the estate duty code if we had not abolished it. There will be no charge to capital gains tax until there is a disposal, whether it is in 1975, 1980 or 2045. The only charge then will be 26 per cent of the capital gain. There will be, at the point of charge, funds available to pay.

With the very high exemption thresholds for capital acquisitions tax, there will be very few cases where both capital gains tax and capital acquisitions tax will arise. Clearly there will be no hardship where this might arise because of the substantial property holdings involved. The reason why the deceased's cost has been taken is because the capital acquisitions tax limits will be very high. The policy behind the high exemption limits for capital acquisition tax and the absence of a charge on death for capital gains tax, is to preserve the family business or farm unit and to avoid, as has happened in the past under the estate duty code, the imposition of a tax at a time when there were no funds to meet it. There will be no charge for capital gains until the money is received on a disposal and, therefore, it is no hardship to collect the tax at the time when the taxpayer is in a position to pay the tax because of the receipt of consideration.

To take the market value of the asset at death as the base value for a future disposal would enable a member of the family who has obtained £150,000 in an inheritance to sell the asset immediately afterwards with a charge neither to capital gains tax nor to capital acquisitions tax. The provision that in such a case the base cost to be taken as the deceased's cost ensures that there is a charge. I consider that this is equitable.

What would be the precise position if the legatee were to get an inheritance of £150,000, sell it immediately, and become subject to capital gains tax? Deputy Colley says we should take £150,000 as the base and the person will be free to sell and no liability to tax will arise. We say that would not be equitable. The purpose of the exemptions is to keep property within families so that they are not forced to sell. If they maintain the property in that way for the family benefit liability to tax does not arise.

Supposing the legatee, on receipt of the gift of £150,000, were to sell it under the Bill which we consider should not be amended, he will still be left with at least £110,000, that is, assuming the whole £150,000 represents a capital gain. That is a more favourable position for the legatee than he would have been in under estate duty.

Mr. Colley

If you take everything into account it might not be.

Mr. R. Ryan

It is pretty certain that it would be in virtually any situation. That leaves the legatee in a comparatively fortunate position. It would not be justifiable to allow that person total exemption. It has been suggested that there might be some hardship in the case of a legacy to a stranger because the exemption limit for capital acquisitions tax is much lower. I agree that the burden of tax would be greater if the gift were made to a stranger, but our concern has been to prevent the breaking up of family business units, family farms, and so on.

Mr. T.J. Fitzpatrick

(Dublin Central): I thought it was to distribute wealth.

Mr. R. Ryan

There are many purposes in the Bill. We have struck a remarkable balance between preserving the means by which families earn their livelihood on the one hand and ensuring that people with substantial accumulations of capital pay a reasonable amount of tax on the other hand. This has not been an easy exercise. I do not accept what Deputy de Valera asserts, that is, that the Minister is pushing this Bill through. He did not use the words "with indecent haste" but he implied them. This Bill was introduced last December. For as long as I can remember no Bill has been teased out over such a long time.

Major de Valera

I did not use the words "with indecent haste".

Mr. R. Ryan

The Deputy did not mention indecency but he suggested haste and I consider that any legislator who proceeded hastily would be acting indecently.

Major de Valera

In all fairness to the Minister I recognised the pressures he was under. I had a feeling that he had not time to look into this at sufficient length.

Mr. R. Ryan

I will report progress and I will have another two hours to think over it before we resume.

Mr. T.J. Fitzpatrick

(Dublin Central): I hope the Minister will come back with something more positive.

Debate adjourned.