Does the Minister have in mind under section 9 that this would be operative if the donor died or is it to be operative if he survives? It is the nature of retrospection that may be involved.
Private Members' Business. - Capital Acquisitions Tax Bill, 1975: Committee Stage (Resumed).
Question again proposed: "That section 9, as amended, stand part of the Bill."
We take into account any gift that occured five years beforehand, irrespective of the nature of the circumstances which gave rise to the gift.
That means that the Minister is introducing retrospection?
No. We are simply aggregating the gifts received by a donee from a particular donor.
The capital acquisitions tax comes into operation as from 28th February, 1974, and should normally relate to any transfer of property or money after that date which might be above the ceiling. Is the Minister saying that he is going back to 1969 and imposing a tax on any transfer of property during the previous five years?
No, the tax will not apply.
It does have that effect where the Schedules are concerned.
It will vary the rate on gifts which were taken subsequently.
It brings it into a different bracket in the Schedules.
It could.
More tax will be chargeable.
What has happened is that the Minister has been led astray by thinking in terms of the inheritance tax and failing to appreciate in this connection that a gift tax was something different. I may be completely wrong but I seem to discern the thinking behind this as follows: if a death were to occur before five years had elapsed there is the possibility of defeating in that case the rule which provided that all gifts within five years of death were to be brought into account. I can see, therefore, that an aggregation to deal with that case is fair, just and equitable.
In so far as inheritance tax is concerned an aggregation of this sort would appear to be justifiable. What is not appreciated here is that we are bringing in not only an inheritance tax, which substitutes for the death duty code and improves it, but also the gift tax inter vivos which is something which was unknown to the law before the passing of this Act and is deemed, and always will be deemed, to be unknown to the law until the intention is disclosed, in other words, on the date set by this Bill—28th February, 1974.
To go anterior to that with the gift tax inter vivos, where no death intervenes, to capture the gift, as it would have been captured in the case of death duties, is introducing an element of objectionable retrospection and setting a precedent here that is disturbing. We have become accustomed to taxes being made retrospective but they were usually made retrospective in a definite way and for a definite purpose. The effect of this is to make a tax retrospective on something which was untaxable and in contemplation of law, whatever about rumour or general talk outside, could not have expected to have been taxed in 1969. That is the reason I consider this aggregation in the case of all gifts objectionable. If, for instance, paragraph (a) were deleted, the aggregation might be defensible, because paragraph (b) refers to any taxable inheritance taken by that donee, as successor, from the same disponer on or after the 1st day of April, 1975. That would simply mean that a case can be made for the aggregation; but in respect of the other I urge the Minister to delete paragraph (a). It will not mean much to him in money; it means some will get away with it. But, even if it operated in favour of a few, the principle of surprise retrospection is disturbing. I use the words “surprise retrospection” because it would be reasonable to suppose—and I think a court would so hold—that in the continuation of the scheme, or the changeover, a loophole for benefit to people for five years under the death duty code would be covered.
With regard to a gift which was absolutely free in 1969—and which would still be free if not for this Bill —while there was a possibility of it being captured on a death, if no death intervened you could have been confident in 1969 that no tax or tax liability would in any way attach to the gift. With that distinction there is a difference in the quality of the retrospection involved in this section in the two cases. I would strongly urge the Minister to reconsider the matter in that light.
Any person who received a gift within five years of 28th February, 1974, was at risk of paying estate duty.
In case of death.
Yes.
But if no death intervened?
They were always at risk of paying estate duty. That is one aspect of the matter. What matters is ability to pay tax. A person who received £100,000 on 27th February, 1974, and another £100,000 on 1st March, 1974, would have the same capacity to pay tax as the person who received £200,000 on 1st March, 1974. Therefore, it is reasonable to look to the accumulation of gifts which people have received over a period and compare their capacity to pay as a result of those gifts with the capacity of those who receive a similar amount after the date in question. We are not doing something which is unknown elsewhere I would refer the House to a recent study by Stanford, Willis and Ironside on An Accessions Tax published by the English Institute of Fiscal Studies in 1973. The accessions to tax set out there are more extensive than our acquisition tax, but the principle we are dealing with here, that of aggregation, is valid to both taxes. They argued that there should be aggregation of benefits received for a period of at least seven years. In fact, they recommended up to ten years before the commencement of the new tax and the reason they offered for this approach was to ensure that taxpayers would be taxed according to their taxable capacity and also to avoid a serious shortfall in revenue especially in the early years. In considering a person's taxable capacity they considered, and I consider, that gifts taken in a reasonable period before the commencement of the tax should be aggregated, not to tax the gifts themselves but rather to determine what is the rate appropriate to a gift which may be made subsequently and which, together with the previous gifts, would put the recipients in a position to pay a higher rate of tax than they would pay if they received only a small amount. The decision to aggregate gifts taken in the five years prior to the White Paper published on 28th February, 1974, but not to tax them, was taken for the reasons to which I referred. The tax will certainly be small in any event because of the exceptionally generous thresholds to the immediate family, by whom most inheritance gifts are taken, and if there are persons outside these thresholds and within the immediate family they are people of not inconsiderable substance and they are people who will have taken possession of considerable benefits, benefits which would have accrued to them within a period of five years. It cannot be seriously suggested that there are elements of hardship or inequity——
Retrospection is inequitable.
——in measuring the ability of such people to pay the appropriate gift tax.
Retrospection is inequitable.
They will pay no tax whatsoever on early gifts. They will simply pay tax on later gifts which are topping up and they will pay a tax only on the topping up of the early gifts which bring them above certain thresholds.
Now, if people have received gifts in the five years between 1969 and 1974 and received nothing after 1974, they will not be asked to pay tax. This is clearly evidence that there is no element of retrospection. We are not going back to tax those gifts and it is only where people receive something subsequent to the introduction of the capital acquisitions tax that they will be asked to pay anything at all. The question of retrospection certainly does not arise. What does arise is that we are providing a measure of the ability of people to pay a tax, having ascertained their ability by looking at the accumulation of gifts they have received. We say that is the appropriate way to deal with it.
I must confess I am mystified. Earlier in the debate the Minister referred to the necessity to project the tax base and in the quotation he gave just now there was a reference to a shortfall in revenue. I am mystified by this because what we are dealing with here is a new tax, a gift tax applicable as on and from 28th February, 1974. There could be no shortfall in revenue from that if it is applied to all gifts coming within the terms of the Bill which occurred on or after 28th February, 1974. There cannot be any question of protecting the tax base in so far as the base is related to gifts occurring on or after that date.
Now it is not by accident that the five-year period appears in this section. Quite clearly that period is related to what Deputy de Valera was talking about and that is the provision in the death duty code whereby a gift made more than five years before the death of the donor was free of duty. If the donor died during the five-year period there was a graduated scale of duty payable depending on the length of time the donor lived after he gave the gift. Deputy de Valera suggested that the aggregation was fair enough in regard to those kinds of gifts. I go even further. If the Minister wanted to have in this Bill a provision the effect of which was that in the case of such gifts there would be no escapable duty or tax—whatever you like to call it—and that the same amount would be paid if the death duty code had not been suspended, I would go along with that fully without any difficulty. But that is not what the Minister is doing. Whatever way he puts it he is engaging in retrospection and I propose to demonstrate that to him by asking him to consider the following: if a gift were made of £x in 1969 and a gift were made of £y in 1975, under this section the amount of gift tax payable is calculated by referring to the sum of x+y. If, on the other hand, a gift of £y had been made in 1975 and no previous gift had been made the tax payable would be calculated in relation to £y, not to £x+£y and it would be a different rate. There is no way the Minister can argue that that means there is no retrospection simply because the tax is levied on £y. If there is a different rate of tax levied on the same amount of gift, depending on whether or not there was a gift made before 28th February, 1974, surely it is obvious that the amount of tax is calculated in reference to and is controlled by a gift made before 28th February, 1974, and, if that is so, how can one describe it as anything other than retrospection?
I urge the Minister to consider very strongly the suggestion we are making and he can do what we suggest either in the aggregation way Deputy de Valera suggested or even a straight continuation of liability for such gifts as would have existed under the death duty code—it will run out in a few years anyway—and we would certainly support that. But do not arrange affairs, as they are arranged in this section, so as to increase the liability to tax based on things that occurred before 28th February, 1974. That is retrospection. It is dangerous. It is unfair. It is a very dangerous precedent to introduce. The Minister should not do it. As Deputy de Valera pointed out, there is probably not very much involved anyway but, even if there were, it would not be justified. It is a most dangerous thing for the Minister to do. If his concern is to ensure that these people who would have had to pay under the death duty code, who may still well have to pay on gifts where the donor dies within five years, then provide for them, make them liable, make them pay up. We have no objection to that, but do not, by introducing the concept of gifts made earlier, in fact introduce retrospection.
There is, in my view, no reason at all if you are going to go back why you should stop at five years. The Minister talks about the ability of people to pay. If the Minister wants to be logical and assess people's ability to pay, then relate it to the wealth tax. Their ability to pay can be determined in that way. Surely the Minister can see this is not really relevant. It is a question of adhering to a principle and not allowing people to escape the liability they would have had if the death duty code were in operation in regard to such gifts, but do not introduce retrospection, which is what the Minister is doing.
I urge him very strongly to consider the dangers implicit in this section as drafted. We will support him if he wants to ensure that people who would have been liable under the death duty code will have the same liability until the death duty code runs out.
Progress reported: Committee to sit again.