I do not think I want to add anything to what I have already said in concluding on this amendment. We put forward all the arguments in favour of it and the Minister has either rejected them or not listened to them. There is no more we can do on this side of the House. The record will show how we tried in this and in other aspects to improve the Bill.
Financial Resolutions, 1975. - Capital Gains Tax Bill, 1974: Report Stage (Resumed).
Debate resumed on amendment No. 27:
In page 26, lines 52 and 53, to delete "consideration for the disposal" and substitute "gain".
—(Deputy Colley.)
Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment No. 28 is cognate.
Amendment No. 28 not moved.
I move amendment No. 29:
In page 27, line 40, after "ownership" to insert "or assets acquired for the purposes of the trade and used only for purposes incidental to the trade".
This matter was referred to on Committee Stage and on 22nd May last, according to the record, at column 561 of Volume 281 of the Official Report, I referred to a particular decision in a British case and the Minister inquired as to the reference. I gave it to him and then I said: "The Minister will look into that?" and the Minister replied: "Certainly". Since there is now no amendment in from the Minister dealing with this point I put down this amendment.
The point at issue is that there is a phrase used in this section which is also used in the British legislation. It is in section 33 of the British Finance Act, 1965. The phrase used in the section is "used and used only". I indicated on Committee Stage that I understood this phrase had been interpreted in the British High Court and I gave the Minister the reference on the Committee Stage. The judge dealing with the case said that he was not prepared to give any definition in regard to the words "used and occupied" in subsection (6) of the British section 33 and the result was a refusal to allow rollover relief on an asset which, in that case, was land acquired for the purposes of the trade and disposed of on proving unsuitable for those purposes. On the basis of that decision it was suggested to me that this section we are now dealing with should apply to assets acquired for the purposes of a trade and not used for any other purposes, unless they were incidental to the trade, in order to avoid the kind of situation which arose as a result of the decision in Britain. I have, therefore, put down this amendment which seeks to insert additional words in line 40: after "ownership" to insert "or assets acquired for the purposes of the trade and used only for purposes incidental to the trade".
The object of the amendment is to cover the situation where assets were acquired for the purposes of the trade and were then found to be unsuitable for those purposes because of the circumstances of the particular trade and, as in the British case, were subsequently disposed of. One would obviously have to be very careful in a situation like this not to open a very wide loophole, and I have sought in the amendment to restrict it by providing that the assets were acquired for the purposes of the trade and used only for the purposes incidental to the trade. That should certainly prevent the abuse which could arise if assets could be acquired ostensibly for the purposes of the trade but not used at all for the purposes of the trade or for purposes incidental to the trade and then disposed of at a substantial gain. They would, of course, thereby escape, for the time being at any rate, liability to capital gains tax because roll-over relief would be available and it could be carried on. One does not want to create a loophole like that.
On the other hand, it is conceivable that in a genuine situation you could have assets acquired for the purposes of a trade but used for purposes, as I said, incidental to the trade, which eventually might have to be disposed of; it would seem that these assets would be liable to capital gains tax immediately and roll-over relief would not be available. In so far as the amendment would cover a genuine case and not open the loophole, I do not think the Minister would have any objection to it. It may be that he will feel the wording is such that it might provide some kind of loophole and I would not like to contend with any degree of certainly that it will not open any loophole. I do not think it will. Consequently, if the Minister believes that the effect of the amendment would be to leave some loophole, I suggest that he should at least indicate his acceptance in principle of what is sought to be achieved here and undertaken to ensure that a genuine case will be catered for in the Bill.
Since the Committee Stage I have examined the case of Temperley v. Visibell Ltd. In that case the issue was as to whether or not land was being used, if it was not occupied as well as being used, for the purposes of the trade. It was decided that, unless the land is occupied as well as used for the purposes of the trade, roll-over provisions would not apply. The provisions in section 28 of this Bill have the same result unless the land is occupied and used for the purposes of a trade. The decision in the British case depended on whether the land was used and occupied. That is a matter for determination on the facts of each case. The judge in the British case said: "I find it impossible to say that the mere visits to the site, coupled with the intention to build and application for planning permission, can satisfy that section". The words in the section ensure that roll-over provisions will not extend to mere speculation in land. In the light of the situation that arose in the British case it is felt that each case should be dealt with on the facts and on its own merits. We are satisfied that genuine cases are fully catered for.
The word "incidental", as Deputy Colley anticipated, is one that contains so many uncertainties and risks that the Minister for Finance and the Revenue Commissioners would not welcome it. "Incidental" suggests a certain element of accidental association. Its introduction into tax law could generate a great deal of ambiguities which it might be better to avoid. So far as the word "incidental" is understood generally, it means associated with a trade and the roll-over effect would probably apply. I use the word "probably" deliberately because the facts of each case would want to be assessed. One could not with certainty forecast what the Revenue Commissioners, the Appeal Commissioners or Judicial Tribunals might determine on the facts of any particular case.
An asset which is used for operations which might be regarded as incidental to a trade, for income tax purposes is regarded as being used for the trade. If an asset is used for, say, private purposes as well as business purposes, the provisions would not apply. This would not create any difficulty for a company because a company's assets, by definition, are not available for private use; they remain the property of the company. I am satisfied that this exclusion will not cause any hardship.
Under subsection (6), what I might call mixed premises, which are used partly for business and partly for private purposes, are specifically dealt with, so that the roll-over provisions as far as the business premises are concerned can take effect. These provisions will cater for the majority of cases in mixed situations of private and business use.
In the case of plant and machinery which is not used fully in a business, but, is used intermittently, there will be no restriction on the availability of relief for such plant and machinery. The full roll-over provisions will be applied in such cases. As I mentioned, in the case of companies there cannot be a mixed, private and business use situation, so no difficulty arises there.
The provisions in section 28 are wide. They cover most, if not all, uses of property which would be entitled to this roll-over benefit. I respectfully say that in genuine cases no further relief is required. We might be introducing undesirable ambiguity if we were to accept the words suggested in the amendment.
(Dublin Central): There should be no ambiguity of any description in this section, which is one of the most powerful in the Bill. It shows where a farmer or businessman can avail of the roll-over and the reinvestment in the same type of property. Am I to take it that in the roll-over a man will not be entitled to the full concession? I can visualise a case where a man who owns a farm sells it and reinvests the money in a different type of business. What I want to know is: does he have to work that business himself? It could happen that because of ill-health he would not be in a position to work the business. This can happen to both land and property. The property may have to be leased and the land may have to be re-let on an 11 month basis. Would there be any ambiguity or confusion here as to whether he would be fully entitled to this concession of the roll-over? A change could take place where a man may not be able to work the land in which he has reinvested his money but would be getting a capital return from it in the form of rent.
It is very difficult to give general answers to questions of this nature, because we would have to look at the facts of each specific case. If the taxpayer is still engaged in a trade or business—he might not be personally involved in it, but one could see a situation where a trade or activity involves a person's attention for many hours and for health reasons a person might have to get out of that and put the proceeds of sale into another business which would involve less active participation—he would get the roll-over relief.
In the Temperley case, the company had property for the purpose of building. It was not property used in the course of any trade and on that account, it was not available for the purpose of a business or trade.
(Dublin Central): The Minister used the phrase “was not occupied or worked”.
I thought the Minister said "used but not occupied." Maybe I am wrong about that.
I thought so too.
Yes. It was decided that unless land is occupied as well as used for the trade, the roll-over provisions will not apply. I want to emphasise that the court has to decide on the facts of each case, whether a particular asset is genuinely an asset of the business to which the roll-over provisions would apply. If the person conducting the business has other property or interests not connected with that business then it may not be available.
(Dublin Central): I do not want to delay the House on this section but I want it to be clear in my mind that the reinvestment will be allowed where there is this type of a change, especially when a man is forced through ill-health to invest in a property or buy the leasehold of a property that will bring him an income. It might be a business property too but he may not be in a position to work it actively himself. The Minister tells me that the Revenue Commissioners are not confined strictly within this section and that they can use their discretion to see if it accords with the spirit of the section.
We will certainly find examples as time goes on of re-investments and people availing of roll-overs in section 28. We may have confusion. For that reason I should like clarification on how broad the scope is with regard to re-investment. The Minister said the section is rather broad. If the type of business I am talking about has to be occupied or has to be worked personally, that is where the difference would come in. It may not be possible for the person who is re-investing in it to occupy it in the same way as he occupied his previous business. The Minister seems to say he will be entitled to carry on the trade I have in mind.
I am not entitled to speak but I just want to answer the question. By virtue of section 2, trade has the same meaning as in the Income Tax Acts. In the Income Tax Acts it has this meaning: it includes every trade, manufacture, adventure or concern in the nature of trade.
I did not take down the particulars of the case the Minister quoted. Apparently a distinction has been made for the purposes of this kind of taxation between user and occupation. Am I right in that?
In the case of temporary occupation.
What constitutes occupation? What is occupation in regard to this code? If the Minister is relying on this distinction, the House should get further information.
I am not relying on it. The case was quoted to me by Deputy Colley on Committee Stage and I have since had a look at it.
The Minister said the effect of the section as it stands and as it is worded is that the premises would have to be used and occupied in order to come within the terms of the section.
If it is used how can it be unoccupied by the person using it?
The Deputy is appealing against the judgment.
I am looking for the rationale. I am not interested in a judgment relating to another jurisdiction. We are passing legislation here for our own jurisdiction. Maybe I misunderstood the Minister but, if he is declining Deputy Colley's amendment on those grounds, I should like a little more information. It seems to me that if the premises are used bona fide for the trade—in fact, if they are used by anybody if they happen to be lands— they are occupied.
Land could be left lying idle.
Then it would not be used.
I hope we are not moving away from Report Stage.
We understand that. The Minister was answering a question.
The Chair does not want to create any precedent.
If it is not being used then it is not being used. The distinction between user and occupation disturbs me if it has a connotation in regard to the section. Deputy Colley's amendment refers to assets acquired for the purposes of the trade and used only for purposes incidental to the trade. The section as it stands provides: "If the consideration which a person carrying on a trade obtains for the disposal of, or of his interest in, assets—I am skipping the parentheses —used and used only, for the purposes of the trade throughout the period of ownership is applied by him in acquiring other assets..." and so on.
It seems to me that, if the distinction between user and occupation is valid as an argument against the proposed amendment, it is equally valid against the Minister's existing section so the objections to including the amendment will fall pro tanto. I can understand the Minister feeling that the word “incidental” may well be enlarging his jurisdiction. In so far as the distinction between user and occupation has substance, it is equally applicable to the Minister's section and to the amendment. I am intrigued by the distinction. Quite frankly I was not aware of it. How far it goes in either case I do not know. The Minister is proposing: “...assets used, and used only, for the purposes of the trade throughout the period of ownership is applied by him in acquiring other assets, or an interest in other assets... which on the acquisition are taken into use, and used only...” It goes on and the roll-over provisions apply. If you provide: “...assets acquired for the purpose of the trade and used only for the purposes of the trade” you are not enlarging the section. You are doing something which Deputy Colley suggests would be beneficial. I admit that there might be an argument on the word “incidental”. If you exclude the word “incidental” you may have made yourself too limited.
We are back to a point made frequently on Committee Stage, the enlarging of the provision sufficient to enable the Revenue Commissioners to have, at the same time, a guideline and also a discretion to apply common sense and equity to the particular case. That is the kernel of what we are at in this section. Therefore, enlarging words of that nature are not dangerous; they are the conferring of discretion. For instance, were one importing a clearly defined legal term, or a phrase judicially interpreted, the case might be different. But, using a word such as "incidental," which would be taken in its ordinary common-or-garden meaning, all one does whether it be the Revenue Commissioners in the first instance or any appellate jurisdiction thereafter, is to give the necessary discretion to decide what is the proper thing to do in such cases as occur in practice. This is clearly a case where I do not think any widening can be done. It is not as if one were conferring a right on the taxpayer here; one is not. It would be very difficult to visualise a case where a plaintiff taxpayer, in any legal sense, would be able to plead, the phrase that Deputy Colley suggests should be inserted as having greater strength than what is in the section already.
The Minister may not be able to deal with it in this House, though in this case I think probably he could. It might be something to consider in the next House to which it goes, always on the basis of achieving the double objective of giving a guideline and support to the Revenue Commissioners in this matter of relief, which is always the best approach where relief is concerned, and, at the same time, a discretion to meet equitably each case as it arises, not tying it to formality.
When I proposed the amendment I indicated that I thought there were genuine cases which might lose the benefit of roll-over relief if the section remained unamended. On the other hand, I indicated also that I had no desire or intention of opening a loophole whereby people could avoid their proper liability to capital gains tax. I think I could fairly summarise the Minister's attitude as saying that he believed the section, as drafted, does cover the genuine case and that, on the other hand, the inclusion of the words in the amendment runs the risk of providing this loophole none of us wants.
Again, as I said when proposing the amendment it is difficult to pronounce with any degree of certainty on this, and certainly I am not attempting to do so. However, there is considerable force in the argument Deputy de Valera has just made, that since this is a restricting and restrictive provision, since the word "incidental", as far as I know, has not been given any special or technical meaning, then if it were, as it would be, interpreted in its ordinary sense, the ultimate effect of the amendment would not be to create the loophole the Minister fears but rather, as Deputy de Valera says, to enable the Revenue Commissioners or any appellate jurisdiction to interpret the section in a way which would allow discretion in the genuine case.
There is considerable force in Deputy de Valera's argument to that effect. Nevertheless I am not in a position, nor do I claim to be, to pronounce with certainty on this matter. It is important that we should have drawn attention to the potential problem. If the Minister is still convinced that acceptance of the amendment or something on those lines would create a loophole, obviously he cannot accept either the amendment or something similar. I do urge on him the force of Deputy de Valera's argument, but if he finds himself unable to accept it, it is not a matter I would push any further, for the reason that I am not prepared, and do not claim to be in a position to pronounce with certainty on what would be the effect of the section or the amendment. One can only use one's best judgment. But in matters of fine distinction of this kind, certainly I do not think any of us here would claim to be able to pronounce with absolute authority and certainty on it.
If the Minister accepts the force of Deputy de Valera's argument. I would ask his to accept the amendment, or indicate his willingness to amend the Bill on those lines. But if he is not in a position to do so, I shall not press the matter any further.
I do not honestly think it is necessary to amend the section at all in order to meet the points raised.
Amendment, by leave, withdrawn.
I move amendment No. 30:
In page 29, to delete lines 1 to 12, and to substitute the following subsection:
"(8) (a) This section shall apply in relation to a person who carries on two or more trades which are in different localities, but which are concerned wholly or mainly with goods or services of the same kind, as if, in relation to the assets used for the purposes of the trades, the trades were the same trade.
(b) This section shall apply in relation to a person who ceases to carry on a trade or trades (the old trade or trades) which he has carried on for a period of ten years or more and commences to carry on another trade or trades (the new trade or trades) within a period of two years from the date on which he ceased to carry on the trade or trades as if, in relation to the old assets used for the purposes of one of the old trades and the new assets used for the purposes of the new trade, the two trades were the same trade.".
This is yet another case which proves my reasonableness and readiness to accept suggestions made by the Opposition.
In the course of the Committee Stage debate the point was raised, I think, by Deputy Fitzpatrick, that the original section did not provide for a situation involving more than one trade. We are producing this amendment to ensure that there will be no limitation even though a person carries on two or more trades in different localities.
It all depends on one's point of view, but I would have thought that this amendment was further evidence of efforts being made by the Opposition to improve the contents of this Bill. The fact that some of those efforts are meeting with success—not enough of them in my view—is welcome. This amendment represents an improvement in the Bill brought about by the efforts of the Opposition. In my view the amendment does a little more than the Minister said. It is true that it meets the case I mentioned that the section as drafted dealt only with two trades. The amendment now covers two or more. It was necessary, in order to introduce the phrase, "two or more", to do redrafting. That has been done but there are matters I should like to raise on this.
During the discussion of this matter on Committee Stage I drew the Minister's attention to another aspect, the administrative difficulties and possible loophole. That existed by reason of the fact that what was visualised was that if a person ceased to carry on a particular trade but within a period of two years embarked on another or similar trade then he would not be liable to the capital gains tax involved because he would be getting the roll-over relief carried forward over the gap of up to two years. The Minister may recall that I drew his attention to possible difficulties in the sense that where the person ceased to trade he could, by indicating to the Revenue Commissioners his intention of embarking on another trade within a period of two years, apparently prevent the collection of capital gains tax. I drew the Minister's attention to the possibility that by the time the two years had expired his assets might have been so depleted as to leave him not in a position to pay the tax. Then he might not proceed into the other trade.
I suggested to the Minister on Committee Stage that in addition to dealing with the point which he has dealt with here he might have a look at that possible loophole or danger to see if something could be done to avert that danger. On the face of it it seems that the amendment is doing so, but when the Minister is replying he could clarify that and indicate his attitude in regard to the danger I have referred to.
The other matter I wish to draw the Minister's attention to is in relation to some of the wording in paragraph (b) of the amendment. I notice that there are in the amendment two phrases in brackets, "the old trade or trades" and the "new trade or trades". Paragraph (b) has these words in brackets to obviate having to refer to them, apparently, except in the terms of the words in brackets and, presumably, that is good enough as a purpose of definition. I note that further on in the paragraph where the words in brackets are used they are used in conjunction with the phrase, "new assets and old assets". There is no previous reference to "new assets and old assets" in brackets, and I am wondering if it is necessary to put the "old trade or trades" and the "new trade or trades" in brackets. Should it not also be necessary to put old assets and new assets in brackets? I am drawing the Minister's attention to this so that if a change is necessary it may be done in time.
My primary concern is in relation to the other matter to which I referred on Committee Stage, the apparent gap in the administration with the attendant loophole. What does the Minister think should be done in regard to that? Does the Minister regard this amendment as dealing with that? On my reading of the amendment I do not think it covers that situation, but perhaps it does in a more subtle way than might appear to show on reading the amendment on its face.
This is one of these cases where the change in form— I am not detracting from the Minister's co-operative and reasonable attitude in his approach to this amendment—is necessarily made but it seems to import some incidental changes of meaning that may not be intended. It would seem that in order to implement the fundamental point, that it was not to be limited to two trades, a change in form of the section has taken place. Essentially the change in form is to be found in the taking of the last paragraph or clause as it is of the original subsection which applied to the paragraphs (a) and (b) together in the first subsection to give two independent paragraphs in the new section. That is a change in form but it can also, incidentally, bring in changes of meaning. This characterises both and applies to the original paragraphs (a) and (b). In the substitute section proposed by the Minister now we find that that phrase is incorporated in paragraph (a) which reads:
This Section shall apply in relation to a person who...
There is no change so far. It continues:
carries on two or more trades which are in different localities,
The only difference here is that the original had "two". If we interpolate after the word "two" in line 2 of page 29 the words "or more" we come to the first change. The subsection then continues:
which are in different localities, but which are concerned with goods or services of the same kind.
The amendment introduces the words "wholly or mainly". In the amendment the words "wholly or mainly" are put in after "concerned". The section continues:
as if, in relation to the assets used for the purposes of the trades.
There is quite a change here because the interpretation of that in the original is much more doubtful. The words "old assets" are used because this has to be related to paragraph (3). The end of paragraph (a) reads: "the trades were the same trade".
If you parse paragraph (a) in that way the significant amendment made by the Minister boils down to two things. The original paragraph (a) is simply amended by the addition of "two or more". Instead of restricting it to two it now reads "two or more" and the word "concerned" is qualified by "wholly or mainly". Thereafter, leaving out the words "old assets" and leaving out the ambiguity which seemed to be in the original section, the relation to old assets and the relation to new trades and other trades brought in a certain ambiguity as to whether it was referring to (a) or (b). Omitting the words "successively or at the same time" may be justified by reference to paragraph (b) as it stands. It now reads:
This section shall apply in relation to a person who carries on two or more trades.
I believe our discussion has been justified in relation to this and I am glad we were of help to the Minister. It shows that constructive debate in the House can be of use to both sides. If one goes on with the parsing of paragraph (b) the way I did paragraph (a) the significant thing here is the omission of "successively or at the same time". Paragraph (a) of the Minister's amendment relates to a person who carries on two trades simultaneously but it does not apply where there is a succession.
In the case of paragraph (b) it may be argued that the Minister provides by postulating or providing that he will cease and commence at another period. The Minister seems to have achieved a proper tidying up of the section but he has carefully avoided in this the proviso for "succession in time" simultaneity as an alternative in the first draft. Is there a deliberate purpose in doing this or does this way he has dissected and recast the section? In other words, by separating the case for simultaneity in different localities from succession has he restricted the operation of the section in any way? It is quite clear, for instance, in his new draft that with the addition of the words "or more", "wholly or mainly" he has clearly covered the case of simultaneous carrying on of a number of related trades—that is quite clear. He also deals in the second section with successivity, when he speaks of somebody who carries on a trade or trades but are these trades in different localities? Has he, for instance, restricted the operation there?
It is a little more difficult on Report Stage than on Committee to do this kind of essential analysis in the House but I think it is essential. Does the Minister get my point?
I do.
In the original section, because it was used at the same time, simultaneity applies as well as successivity—to coin a queer word—in paragraph (a). It combined this with "different localities". Is it clear that in the new draft paragraph (a) applies only to simultaneity in different localities? Paragraph (a) is unobjectionable; it is a good amendment: I am not querying the addition of the words and it is difficult to see how you would import succession into paragraph (a). That leads me to ask is there any reason for the omission? Or, is it accidental? Is there any reason why "different localities" do not appear to be provided for in section (b)? This may be quite accidental but, if so, I should like to draw it to the Minister's attention. If there is a reason for it, I am sure the Minister will tell us.
Reading the Minister's amendment we find no mention of "different localities" in paragraph (b): the two paragraphs stand on their own as if they were separate subsections. The new draft is such that you could equally have included each of these paragraphs as self-contained subsections because they contain all the operative words. Therefore, simultaneity and "different localities" are provided for under paragraph (a) in the new draft and you have succession but no reference to "different localities" in paragraph (b) of the new draft. On the other hand if you take the original draft, in its very nature from the opening phrase stating its operation and in its final clause stating the effect of the application or what the application is, the words "successively or at the same time" and "different localities" are so linked as to, in all reasonable interpretations, apply to both.
If I have made the point clear I am not asking the Minister any more than: is this accidental or was it intended? If it was intended, is there any reason why the succession should not apply in different localities and is there any danger, in point of legal interpretation, that if this matter were to be tried in court, because of the contrast between the wording of paragraph (a) of the amendment draft containing the words "in different localities" and paragraph (b) a point might be made that the omission from paragraph (b) had a purpose and only applied to successive trades caried on in the same locality?
I hope I have indicated what I mean. It is a matter completely for the Minister, but if there was a reason why one would consciously exclude the extension to "different localities" in paragraph (b) it would be interesting to know it.
(Dublin Central): This was raised on the Committee Stage of the Bill—broadening the scope as regards the investment. The Minister is right to introduce this section, which certainly gives broader scope to somebody who wants to avail of the roll-over, and it provides a much wider choice. There is one part of the Minister's amendment that I should like to have clarified before going further and that is Section (b) of the amendment. Section 28 (3) of the Bill indicates to me that three years are allowed for reinvestment. Subsection 3 (6) says:
This section shall only apply if the acquisition of, or of the interest in, the new assets takes place, or an unconditional contract for the acquisition is entered into, in the period beginning 12 months before and ending three years after....
But the Minister's amendment seems to be different and he seems to specify a period of two years. He is not as specific in subsection (3) in the Bill and it seems to me there is a great length of time available for reinvestment under subsection (3) than the Minister is giving in his amendment. I presume that where there is direct reinvestment in the same property subsection (3) will apply but, by introducing this amendment, the Minister seems to be putting in certain provisos as regards a two-year period. I believe this will apply to a man whose property is acquired compulsorily and I think the Minister will agree that anyone who has had property and has to reinvest may invest in an entirely different type of business. If I am wrong I should like the Minister to intervene at this point. My line of thought may not correspond with what the Minister is trying to do in this amendment but, as I see it, the amendment specifies within a period of two years while subsection (3) of the Bill seems to mean that you can invest up to three years afterwards.
To reinvest in a property is a slow process and can often take a number of years. I do not have to tell people in this House who have sold their property that it can often take a considerable length of time, far in excess of the two years provided in the Minister's amendment, to get back into business again.
I believe this amendment will also apply to people who want to reinvest where their property has been compulsorily acquired by a local authority. Take a town in a remote part of the country where your property has been acquired for road widening by a local authority. You have your private house and your children are going to school in that town. You could be running a hotel, a draper's shop or whatever it might be. The Minister knows as well as I do that very seldom would the type of property in which you would be interested come on the market in that town. Your options there would be very limited, and it is not always possible to move 60 or 70 miles away to Dublin or some other city. You have established your roots in that part of the country.
I believe that two years is too short a period to allow a person, especially one whose property has been compulsorily acquired to reinvest his money. I hope the Minister will be able to tell me that this provision does not apply to this person if he is trying to get back into the type of business he was running before his property was compulsorily acquired. He could be in the licensed trade or the hotel business and he might be advised by his doctor, now that the local authority has acquired his property, that it would be unwise to invest in that type of business again. He might like the opportunity of reinvesting his money and it seems he would be confined to a period of two years under this amendment. I am not sure why the Minister did not apply the same provision as in subsection (3) of section 28 which gives a little more latitude as regards reinvestment, namely three years, although even the three years is not sufficient for reinvesting and going back into a particular business.
People I know sold their property because they got what they thought at the time was an attractive price for it. Many such people have regretted that decision and if they had the property back again would never sell it. They found that when they went out to reinvest their money it was extremely difficult, especially in the property business, to get back again, especially when they were confined to a particular part of the country in the circumstances I have outlined where property is acquired by a local authority.
On Second Stage and on Committee Stage of the Bill I expressed the view that three years was not sufficient to avail of the roll-over. Maybe the Minister was worried that the assets would be used and it would not be possible to recover the appropriate amount from the person who had sold his property. He was probably concerned that by leaving it too long without being reinvested the money might be gambled or wasted. That is an administrative point of view, but I am talking about individual cases I can visualise. I would prefer to see some arrangement whereby the Revenue Commissioners would be assured of their money, if it was not reinvested, by means of a provision written into this Bill which would at the same time, give the proper time to that person to reinvest his capital.
There are people who will be fighting against this deadline of two years. A year-and-a-half will have elapsed and they will have failed to reinvest their capital. In such a situation bad decisions can be made as regards investment in business. A price could be paid for property far in excess of what it was worth in order to keep within this amendment.
As I have already said it is not easy to find a suitable property to get back into business. In a remote part of the country or in a provincial town the number of occasions when a property will come up for sale to suit your requirements will be very limited. When the Minister takes his Bill to the Seanad he should at least give the same concession of three years which he has given under subsection (3) of section 28. That will go part of the way towards what we seek here, but, as I said, I am not happy even with the three-year limit.
I welcome provision for an option regarding two or more trades. As drafted originally there could have been many problems, but since the Minister has gone so far now he could at least have brought subsection (3) into the amendment. I trust that he will be able to tell me that the fears I have expressed are unfounded. I should be happy to think that the time limit provided for in subsection (3) will operate also under this amendment.
I, too would like to hear the Minister on this. I welcome the broadening of the options in amendments (a) and (b) of subsection (8) to two or more trades. I welcome, too, the inclusion of trades which are concerned wholly or mainly with goods. This is followed through in subsection (b) by the inclusion of the words "another trade of trades". In this way the Minister is allowing for some degree of initiative, the sort of initiative that is needed if the Minister is to insist on having capital gains tax of the type being presented to us because this, in itself, deters initiative. These two amendments combined will help to encourage some degree of initiative for people who might be willing to engage in trade.
Deputy Colley has raised the possibility of tax being spent before the Revenue Commissioners would be in a position to collect it. I suppose that is true of many taxes, including income tax, for the people who are not on the PAYE system. If we had a provision in the Bill whereby the sum required to meet potential tax liability should be placed on deposit in the name of the Revenue Commissioners I could visualise very strong opposition.
Not if the Commissioners collected it and paid it back when due at 18 per cent.
The Deputy is anticipating my argument. His generous proposal that the State should be obliged to pay 18 per cent on excessive amounts of capital gains tax collected would mean that people could get a greater return from the innocent Revenue than they would get elsewhere.
There might be very generous loans to the Commissioners.
I could raise money in any part of the world on much better conditions than 18 per cent.
I should hope so.
I understand the anxiety to protect the revenue, but I would prefer to see the system in practice so that we could ascertain ascertain whether occasions would arise where the Revenue would not be able to collect their due share of tax because of its being reinvested in trade of business. That would not be likely to occur any more often than such occasions occur in relation to other taxes. However, should it become the practice we would have to enforce it is such a way as to prevent such loss of revenue, but I would not like to make the innocent suffer with the guilty or to impose what might be an unfair restriction in relation to the handling of one's resources pending reinvestment in trade or business.
Subsection (1) specifies what are old and what are new assets. It is not necessary to repeat this in subsection (8).
I agree.
Deputy de Valera pointed out quite rightly that the two paragraphs stand on their own, that they are self-sufficient.
That is an improvement.
Yes. It removes the ambiguity which it could be said existed in the original draft. The reason for using the phrase "in different localities" in the first paragraph was raised in the course of our Committee Stage debate, specifically by Deputy Fitzpatrick, who I know is interested in trade. It is not infrequent for people to carry on similar business in different localities, but where more than one business is carried on in the one locality it tends to be treated as one trade. We wanted to show in that paragraph that the mere fact that similar trades were carried on far removed from one another would not deprive them of this benefit.
The idea of succession is involved in the second paragraph and does not have to be spelled out because it refers to the replacement of an old trade by a new trade and that involves the idea of succession, without introducing that word. The reference in paragraph (b) to different trades being carried on in succession means that although they may be carried on in different localities, they are not excluded from the benefit. Where two or more trades are being carried on simultaneously it is necessary to introduce the cause relating to different localities to show they are not outside the relief. If one ceases one trade and starts another, the question of its location does not matter. It is a question of the succession in trades which is involved in so far as paragraph (b) is concerned.
Deputy Fitzpatrick was pressing the question of the two-year period in paragraph (b) as against three years in subsection (3). He will recall that on the 22nd May, during Committee Stage, he and I were debating this question and concluded with some degree of agreement. I said that we were providing in paragraph (3) for a case where a person disposes of assets or a business and acquires a similar business within three years. When it is a case of the same kind of activity, it is much easier to treat it than the case we are dealing with in subsection (8). During the Committee Stage I said that there is a big difference between a person continuing a business, disposing of assets in that business and reinvesting in it, and a person who disposes of an entire business and asks to have tax postponed until such time as he becomes involved in a new business. There is a case for having a shorter period in the case of a person changing business compared with the person who remains in the same type of business but is simply changing assets. Deputy Fitzpatrick said he accepted there was a difference.
(Dublin Central): I said I agreed at that time but, reading the amendment now, I am sorry I said it.
This might be a happier House if other people expressed the same sentiment that Deputy Fitzpatrick has just given voice to.
(Dublin Central): In view of the case I put forward, especially in regard to towns in rural areas, I am sorry the Minister did not stick to subsection (3).
The granting of relief to a person changing business was a concession, and a very proper one, made between the Second Stage and the Committee Stage. I do not think I would be justified in extending any further the period of grace given to a person who is changing business.
(Dublin Central): Would it not be better from an administration point of view to have just the one section?
There is a significant difference. If a person is getting out of one trade and into another, and he starts this process over two years, he will be protected even if he has not acquired all the assets necessary to conduct his new trade within the two years. He can acquire his assets under subsection (3) for the new trade.
(Dublin Central): I agree, but I was particularly concerned about compulsory acquisition.
The Deputy is well aware that compulsory acquisition is a prolonged process and, as often as not, people can anticipate and make proper arrangement. You will never produce perfect law. If you try to cover every situation you will end up with complex law producing more injustices and anomalies than you will by leaving it reasonably fair, as it is at the moment. I take it there is agreement to the amendment?
Is the Minister satisfied, having regard to the structure of paragraph (a), that paragraph (b) is not confined to trades in the same locality?
Yes.
Amendment put and agreed to.
The Chair would point out that the Bill will need recommittal in respect of amendment No. 31 as it creates a charge on people.
Bill recommitted in respect of amendment No. 31.
I move amendment No. 31:
In page 35, between lines 10 and 11, but in section 35, to insert the following subsection:
"(5) This section shall apply to a company falling within section 36 as it applies to a controlled company.".
A question arose on Committee Stage as to whether there should be provision under section 36 for shareholders in a private non-resident company similar to the provisions in section 35 for shareholders of a resident private company. This amendment is aimed at extending the scope of section 35 to bring within its provisions non-resident controlled companies. This is what was requested. Thus, if the value of shares in such a company is depreciated because of the transfer of assets out of the company an adjustment will be made in the costs allowable to a shareholder in respect of those shares in the same way as is done in a case coming under section 35.
I do not quite understand. How does this create a charge?
On the Committee Stage on 22nd May last, at column 618 of Volume 281 of the Official Report, Deputy Colley raised the question as to whether the shareholders of resident and non-resident companies were being put on an equal footing in sections 35 and 36. I acknowledged they were not on an equal footing, and what we are doing here is putting them on an equal footing.
The Chair indicated that this amendment requires recommittal because it involves a charge. Could the Minister enlighten me as to how the charge on people arises?
The scope of the section is being amended in such a way as to put a restriction upon certain allowable items and, because of that restriction, a person's chargeable gains could be correspondingly greater and, to that extent, the charge is being extended.
I should have thought that it could result in greater revenue not less revenue. Is that not so?
Yes, and because you can collect more there is a greater charge.
Yes. I know what the intention is. As the Minister has indicated, I did ask on Committee Stage that the shareholders in the Irish resident company be put on the same footing as the shareholders in the non-resident company and I know that is what the Minister's intention is. However, I should like clarification as to how precisely this will work. If the Minister refers to subsection (1) of section 35—we are dealing now with a resident company—that provided:
(1) If on or after the 6th day of April, 1974, a company which is a controlled company transfers an asset to any person otherwise than by way of a bargain made at arm's length and for a consideration of an amount or value less than the market value of the asset, an amount equal to the difference shall be apportioned among the issued shares of the company, and the holders of those shares shall be treated in accordance with the following provisions of this section.
In other words, to the extent that the gain is below market value a sum is added on equivalent to the shortage in market value and apportioned out among the shares and then the shareholders are treated as having got that portion of the gain. That is the treatment provided in subsection (1) of section 35. If the Minister looks at subsection (2) of section 36, it provides:
Subject to this section, every person who, at the time when the chargeable gain accures to the company—
(a) is resident or ordinarily resident in the State,
(b) if an individual is domiciled in the State, and
(c) holds shares in the company,
shall be treated for the purposes of this Act as if a part of the chargeable gain had accrued to him.
Am I right in thinking that under subsection (1) of section 35 the whole of the amount by which the transaction is below the market value is apportioned amongst all the shareholders——
Yes.
——whereas, in the case of the non-resident company under section 36 only so much is apportioned out as relates to shareholders who are resident in the State or, if an individual, domiciled in the State? Would that be correct?
Under section 36 (2) a shareholder who is resident or ordinarily resident in the State, who is domiciled here, is liable to the tax on the appropriate part of any chargeable gains made by the company, as if the gains had been made by him.
If we assume that there are, say, five shareholders in a resident company and five shareholders in a non-resident company, and if we assume that the amount by which the transaction is less than the market value is £1,000 in each case, in the case of the resident company, £200 will be attributed to each of the shareholders—assuming they hold the shares equally between them—that is, one-fifth of the difference will be divided between them and they will be responsible for that. In the case of the non-resident company with five shareholders, three of whom are domiciled here and two of whom are not, do you then apportion out only £600, in other words, to those who are resident or domiciled here and ignore the other £400 because the shareholders are outside the jurisdiction? Is that the position?
Yes.
That may be the only way to do it, but the thought in my mind is this: if we are trying to put them on an equal footing, in those circumstances, should we not be attributing the £1,500 in the case of the non-resident company to the three resident shareholders? The Minister, I am sure, knows what is in my mind. One can gain a substantial advantage by having a non-resident company in this way, by having the bulk of the £1,000—in the case I was talking about—attributed to the shareholders outside the jurisdiction and thereby effectively avoid liability to the extent that it can be attributable to shareholders outside the jurisdiction.
If the profit is enjoyed by others, there will be so much less profit enjoyed by those who are within the jurisdiction. There is no gain to those who are here to have shareholders who are not domiciled here.
The Minister and I are reversing roles at the moment. I am thinking of the manner in which this can be abused and the Minister is defending it. However, I will not pursue it any further. I have drawn the Minister's attention to it and I do not think I need go any further.
Amendment agreed to.
Amendment reported and agreed to.
I move amendment No.32:
In page 42, to delete lines 41 to 57, and in page 43, to delete lines 1 to 9 and to substitute the following subsections:
"(5) Where an option which is an option to acquire assets exercisable by a person intending to use them, if acquired, for the purposes of a trade carried on by him or which he commences to carry on within two years of his acquisition of the option, is disposed of or abandoned then—
(a) if the option is abandoned, the abandonment shall, notwithstanding subsection (3), constitute the disposal of an asset (namely, the option), and
(b) paragraph 9 of Schedule 1 (restriction of allowable expenditure for wasting asset) shall not apply.
(6) (a) Where an option to subscribe for shares in a company, being an option of a kind which, at the time of disposal or abandonment, is quoted, and, in the same manner as shares, dealt in on a stock exchange in the State or elsewhere, is disposed of or abandoned, then—
(i) if the option is abandoned, the abandonment shall, notwithstanding subsection (3) constitute the disposal of an asset (namely, of the option), and
(ii) paragraph 9 of Schedule 1 (restriction of allowable expenditure for wasting asset) and subsection (4) shall not apply.
(b) Where an option mentioned in paragraph (a) is dealt in within three months after the taking effect with respect to the company granting the option, of any reorganisation, reduction, conversion or amalgamation to which paragraph 2, 3, 4 or 5 of Schedule 2 applies (or within such longer period as the Revenue Commissioners may by notice in writing allow), the option shall, for the purposes of the said paragraphs 2, 3, 4 or 5, be regarded as the shares which could be acquired by exercising the option and section 49 (3) shall apply for determining its market value."
This amendment is designed to meet some criticism of the layout of subsection (5) of the section during the Committee Stage debate. If I remember rightly, Deputy de Valera was the main critic, although I am not attributing the blame or credit to any one person. Two new subsections are being substituted in place of the old subsection (5), and apart from one further point which arose during the debate there is no change in substance involved.
These subsections exclude certain options from the provisions of subsection (3) of the section and of paragraph 9 of Schedule 1. Among those excluded is an option to acquire assets with the intention of using the assets for the purposes of a trade. There was some doubt expressed as to whether the trade would have to be in existence at the time of acquiring the option and I said that I would look at the wording and, if necessary, make it clear that the subsection covers cases of genuine trading intentions, even, if the trade did not exist at the time of the acquisition. The insertion of the words "or which he commences to carry on within two years of his acquisition of the option" ensures that where a trade is commenced within two years, an option to acquire assets by a person intending to use them eventually for such trade will qualify under the subsection.
May we take it from what the Minister has said that the only substantive change involved in this fairly lengthy amendment is such as he described and is in response to the points raised on Committee Stage? There is no other substantive change involved?
No.
Amendment agreed to.
I move amendment No.33:
In page 45, line 22, to delete "If and so far as any such appeal" and to substitute "If and so far as any appeal against an assessment to capital gains tax or against a decision on a claim under this Act".
It was agreed during Committee Stage debate that following the deletion of the original subsection (6) of section 49, a consequential amendment would be required in subsection (7) because the words "any such appeal" referred to appeals mentioned in the deleted subsection. For procedural reasons the amendment had to be put back to this Stage and this was the amendment which it was agreed was required to meet the point raised.
I am not quite sure if I got the Minister's point. Do I understand him to say that the reference in subsection (6) as it stands, unamended, to "any such appeal" refers to something which has been deleted——
Yes.
——and that this amendment is making sense of "any such appeal"? As the Bill stands at the moment, it does not make any sense without this amendment?
That is right.
Amendment agreed to.
I move amendment No.34:
In page 47, to delete subparagraph (3), and to substitute the following subparagraph:
"(3) (a) Where—
(i) a company incurs expenditure on the construction of any building, structure or works, being expenditure allowable as a deduction under subparagraph (1) in computing a gain accruing to the company on the disposal of the building, structure or works, or of any asset comprising it,
(ii) that expenditure was defrayed out of borrowed money, and
(iii) the company charged to capital all or any part of the interest on that borrowed money referable to a period ending on or before the disposal,
the sums so allowable under the said subparagraph (1) shall include the amount of that interest charged to capital except in so far as such interest has been taken into account for the purposes of relief under the Income Tax Acts, or could have been so taken into account but for an insufficiency of income or profits or gains.
(b) Subject to clause (a), no payment of interest shall be allowable as a deduction under this paragraph."
I undertook on Committee Stage to produce an amendment to provide for relief for interest paid to the extent possible, having regard to the need to preserve the anti-avoidance provisions in relation to interest in the income tax code. As was pointed out during that debate, in the case of a company, because of the requirements under the Companies Act, 1963, to produce audited accounts, a clear distinction can be drawn between interest charged to income account and interest charged to capital account. It would not be possible to maintain such a distinction in relation to the accounts of individuals. Accordingly, if relief in respect of interest charged to capital were extended to individuals, the income tax anti-avoidance provisions in relation to interest could, so far as individuals are concerned, be circumvented to the extent that interest disallowed under these provisions could be represented as being charged to capital and therefore become eligible for relief at the capital gains tax rate. In the circumstances it is considered that relief in respect of interest charged to capital should be restricted to companies. This would not involve a significant degree of hardship to individuals as those owning smaller amounts of property are catered for adequately by £2,000 limit for relief fixed under the existing income tax anti-avoidance provisions, and other property owners could avail of the relief proposed in this amendment by incorporation which is comparatively simple and inexpensive.
Could I ask the Minister is it implied in what he just said that relief against interest under the income tax code or under the capital gains tax code is virtually interchangeable? That seems to be implied in what he has just said in explanation of this amendment.
In the ordinary accounts of a company you can clearly distinguish between income and capital accounts. There is no law which recognises or contemplates such a distinction in the accounts of individuals.
(Dublin Central): Is that not a distinction in the audit?
There was no question of an individual making a capital return except in the unhappy event of death.
(Dublin Central): It may not have been necessary up to now.
There is no legal requirement for producing a capital account in respect of individuals and, therefore, the question of chargeable interest on capital does not arise.
I want to ask the Minister one or two questions because I do not want to ramble off on the wrong line. If what the Minister says is correct, and I do not doubt that it is, how could somebody use a provision for relief of interest against capital gains tax to get around the limitation of £2,000 under the income tax code if they are not interchangeable?
Under the income tax code a person simply claims as an outgoing against income interest which he is paying on borrowed money.
(Dublin Central): It would still be related to the capital surely.
The first thing we have to be clear on is the difference between an incorporated body and an individual.
That is fundamental.
Heretofore in the case of an individual under the income tax code relief was allowed to a certain extent in regard to interest paid on an overdraft or something like that. Is that not correct?
Yes.
The question of capital does not arise because capital in the hands of the individual was not chargeable.
That is right.
There was no question of any other tax impinging on the individual from day to day, apart from death duties or something like that. There was no direct tax impinging on him other than income tax. Therefore, the question of interest was limited. In this Schedule there is clearly the policy that there will not be double relief.
Or double charges.
The reliefs available under the income tax code will not be available in regard to capital gains. Starting with that premises, we find that the original draft says that no payment of interest shall be allowable as a deduction under this paragraph. Provision is made for sums allowable as a deduction from the consideration in the computation under the Schedule of the gain accruing to a person on the disposal of an asset. I take it the Minister's approach is that, if it stood as it was although logically and properly applicable to an individual, it would operate in an anomalous manner where a company was concerned. Am I right so far?
Yes.
We have to look at the position of a company as well. A limited company is governed by the Companies Acts the latest of which was our own Act of 1963. We had the 1908 Act before that. Under the provisions of those Acts, including the Schedules and tables, there are very definite accounting provisions which contemplate and provide for the allocation of company earnings and expenditure to what one might call revenue and capital accounts.
On the other hand, there is the question of taxation which has two aspects. First of all, there is the specific corporation profits tax or a specific tax which does not apply to the individual. Secondly, there are the provisions in regard to income tax. A common enough thing which occurs with companies is that when they expend money on, say, building or the acquisition or the creation of a capitalisable asset, the question very often arises as to what expenditure is to be charged to revenue and what expenditure is to be charged to capital. Approaching the matter from that point of view we arrive at the genesis of the section.
In this case am I correct in saying that it is usual for the company, very often through their auditors or with the assistance of their auditors, to agree with the inspector as to what is an equitable apportionment of the expenditure involved from the point of view of capitalisation or writing it off to revenue. Is that not another consideration? In other words, the question will often arise as to whether a particular expenditure is to be written off as a cost against revenue and, therefore, pro tanto, reduces income, or whether it is to be capitalised, in some other way to attract tax. That is usually a matter which is agreed and worked out in an individual case on well-defined principles and works fairly uniformly and equitably over the board as far as companies are concerned. Therefore the Minister is faced with the problem that in regard to the individual capital taxation is something completely new, the idea of individual capital is new to taxation law and comes under the code the Minister is now putting through the House. On the other hand the concept of capital and capital assets is well established already in the case of corporate bodies.
If I am correct in that the Minister's amendment becomes intelligible. Since this is not Committee Stage I should be much obliged to the Minister if he would correct me if I am going off the rails, which would save him time when replying. As I see it what the Minister intends doing is this: Maintain the original subsection (3) in so far as it affects the individual, and provide additional and specifically for the case of the company in the circumstances outlined, because if one looks at the Minister's amendment——
(Dublin Central): Is not the Minister deleting this subparagraph?
If one looks at the Minister's amendment, one will see that subparagraph (3) which is deleted, is reimported as paragraph (b) at the end of the amendment. Am I correct in that?
Yes, that is correct.
Therefore, the net effect of what the Minister is doing is letting his original stand and adding a provision to cover the case of the company. Am I correct in that?
Yes, that is correct.
It does need to be spelled out in this way. In effect the Minister is letting his original draft stand; letting the deleted paragraph (3) stand by its reintroduction as subparagraph (b).
It is now qualified by clause (a).
It is not even a qualification. Clause (a) is an addition, because it is subject to clause (a). Clause (a) essentially is an addition. The Minister is perfectly right—it does, of course, except companies covered by subparagraphs (i), (ii) and (iii). It does except companies, in that case, from the omnibus capture by the original paragraph (3). Am I correct in that?
Yes.
Therefore, what the Minister is doing here is this: that in the particular case where a company incurs expenditure on the construction of any building, structure or works, being expenditure allowable as a deduction under subparagraph (i) in computing a gain accruing to the company on the disposal of the building, structure or works, or any asset comprising it,....
Therefore, the first prerequisite is that there is expenditure on the building, structure or works. This is a very frequent and usual happening—a company builds new premises—it happens every day. There has to be a decision as to whether that interest shall be charged to capital or to revenue. That is really what it means. Take the case of a company that borrows for capital purposes and pays interest on that borrowed money. How is that interest to be treated? Is it to be written off against revenue or is it to be capitalised? It is the same type of problem. I do not think that is unknown. Therefore, I do not think there is any administrative or unknown feature in it.
Coming to subparagraph (ii) reading:
that expenditure was defrayed out of borrowed money,
I take it, that is where the interest originates, that the payment of interest originates out of the borrowing. It seems, at first blush, somewhat naïve to introduce subparagraph (ii). On the other hand, it is equally conceivable that the ingenious evader might try to label something "interest" in some other way and that the best guarantee that the Revenue Commissioners and the Minister could have that this is genuine interest is to specify the sum on which the interest accrues. Although it does appear to be somewhat naïve, it is probably a necessary addition to the conditions under which the company applies.
Then there is subparagraph (iii) reading:
the company charged to capital all or any part of the interest on that borrowed money referrable to a period ending on or before the disposal,
That is necessary because, if it was charged to revenue, it would probably attract income tax relief and there would be then the application of double relief under the first part of the Schedule. Therefore, I can see that it is desirable to say that the interest has been charged to capital; in other words, that that interest has been capitalised. Again, that is quite a usual thing. The Revenue Commissioners will be very familiar with the circumstances under which such matters arise. The amendment for that states:
the sums so allowable under the said subparagraph (1) shall include the amount of that interest charged to capital except in so far as such interest has been taken into account for the purposes of relief under the Income Tax Acts or could have been so taken into account but for an insufficiency of income or profits or gains.
It is in this part of the new section that I enter a hazy area. I understand what the Minister proposes when he considers reliefs under the Income Tax Acts. We are in an area that is not completely new. However, I am not clear as to how far the interest that is clearly specified as accruing on the borrowed money under the conditions of subparagraph (1), (2) and (3) will be included as allowable under subparagraph (1) of paragraph 3. I should like to ask the Minister for elucidation as to the content of the words "or could have been so taken into account but for an insufficiency of income or profits or gains".
Clause B is the reimportation of the deleted subsection (3), subject to the qualification and the addition of paragraph (a) of the amendment.
The original subparagraph (3) which the Minister is now deleting read:
No payment of interest shall be allowable as a deduction under this paragraph.
On Committee Stage we pointed out the enormity of that provision. To the extent that this amendment is allowing interest now in respect of companies it is a step forward. I referred to the enormity of that provision because one of the major items of cost involved by anybody in making any investment is the cost of the money itself. Money has a cost just like any other commodity and to allow various other deduction and not to allow a deduction in respect of the cost of money was, of course, an enormity.
To the extent that the Minister is now proposing to allow it in respect of companies it is a step forward but I do not think it goes far enough. The Minister has to take another step because he is excluding the benefit of this deduction which clearly he accepts now, in the case of companies, should be allowable from the individual.
(Dublin Central): We will all be companies shortly.
There is a clear compulsion here on one to become a company. The Minister said that in so far as individuals were concerned the cost of setting up a company was relatively small and they could get around the difficulty that way. That is no answer to the people who are already liable for capital gains tax, who have already incurred liability for interest—I am speaking of individuals who have not yet formed themselves into a company. There is no remedy for them in that suggestion of the Minister. I am not sure that the Minister is justified in trying to force people to form limited liability companies if they are to get the benefit of this deduction which he clearly acknowledges by this amendment is a justifiable deduction and, whether he acknowledged it or not, it is selfevident. The effect of the amendment is to force an individual to form a limited liability company if he is to get any benefit by way of deduction of interest in respect of capital gains tax.
As Deputy de Valera said, this is the first piece of legislation which brought forward the concept in the case of an individual of capital on the one hand and revenue on the other. It might be said that under the death duty code that is a capital tax and that is true but I do not think it was necessary under that code to make the kind of distinction that has to be made here. The Minister finds that because of the accounting difficulties involved in order to get round them he will give the concession to a company and if one is not a company he should form himself into a company to get it, but in the case of an individual he cannot be coped with. It is like the computer that cannot cope with certain problems put to it.
(Dublin Central): That would create an administrative problem.
Not alone that, it creates a wonderful avenue for avoidance.
The Minister is introducing this legislation, and I do not think he is justified, in order to make people fit neatly into his administrative machine and not to have an escape hatch from capital gains tax, saying that they should form themselves into a company or they do not figure in his calculations. If a person is formed into a company he will get all the deduction but if that person dares to express his or her individuality by refusing to form a limited liability company that person will not get it. That could be a major interest factor at this time. I do not think it is sufficient justification to say: "If I do not do this, then there is an avenue of escape."
With the introduction of this legislation there is an onus on the Minister to devise a method whereby one can distinguish between capital and current expenditure on the part of an individual. After all, it is a problem which originally had to be faced in regard to companies. It will have to be faced now in regard to individuals. Because it is difficult it does not mean it should be shoved aside and people told, "you conform to our requirements", instead of the law being made to conform to the requirements of the individual. There is too much of the big brother about this whole approach involved in paragraph (b) of subparagraph (3) as introduced by the Minister in this amendment. A great deal more is involved in that than appears on its face. I put it to the Minister that the onus is on him introducing this legislation, since he acknowledges the justice of the claim for deduction of interest, to ensure that he devises a machine which will accommodate the individual and not merely a limited liability company.
Debate adjourned.