Finance Bill, 1982: Financial Resolutions.

I move:

That, as respects the year 1982-83 and subsequent years of assessment, the provisions of the Income Tax Acts relating to the charge to income tax of the benefit of the use of a car be amended in the manner and to the extent specified by the Act giving effect to this Resolution.

I wish to ask the Minister what approximate revenue will be raised by the subject matter of this resolution in 1982 and 1983. I should like to know the difference between the amount of revenue that will be raised by this proposal in regard to benefits in kind as against the amount of revenue that would have been raised by the proposal contained in the March budget which has been somewhat amended by the proposal now in the Finance Bill in respect of 1982 and 1983. Perhaps the Minister would indicate also the revenue of the original proposal in the January budget?

Do I take it that the rules in regard to Committee Stage apply in regard to these resolutions? If I once yield my place is it the position that I cannot speak again?

No. There must be some latitude allowed for this, but it could not continue in the form of a Committee Stage debate.

I see. Will the Minister say what implications this will have for the motor industry? Some concern has been expressed about the matter and I should like to have his view on that point. Some people think this will lead to significant problems for the motor industry but, on the other hand, I realise that most cars are imported.

Further, I should like the Minister to tell us what impact this proposal will have and whether companies will have an incentive to keep renewing cars frequently rather than to retain existing cars for a longer time. I ask that question in view of the valuation that has been used. People will be taxed a number of years afterwards on the basis of a proportion of the new value of the car. If they are going to be taxed in any event on the new value of the car this will give them an incentive to get a new car every year. It might lead to a situation where people would have an artificial incentive to have new cars they might not need when, in the national interest, they would be better to keep existing cars. This would be less of a burden on the balance of payments and would give more employment in the motor repair industry.

On a point of clarification, what is the purpose of discussing all these motions rather than the sections? I am a little confused about the matter.

Standing Orders provide that there must be a Financial Resolution where tax is involved. The Financial Resolution draws attention to that.

What is the amount of revenue that is expected to be collected in respect of the change in the benefit in kind on company cars? I wish to know why it is considered necessary to assess the company car benefit in kind as a percentage of the cost. These changes have been made since the January proposals and the March budget. However, the amount is still based on the original cost of the car and over the lifetime of the car it will be a percentage each year of the original cost.

I should like to know why that should be the basis rather than the normal basis relative to the written down value where your take X percentage of the cost in the first year and you take the same percentage of the written down value the next year and so on. I see no legitimate basis because, as Deputy Bruton has pointed out, the temptation will be to keep replacing one's company car with a new car since the assessment will be on the percentage of cost at all times. My view is that the change being made in this company car benefit in kind legislation is not necessary. I believe it is wrong. I believe some civil servants are perhaps envious of people in outside employments who have the benefit of company cars and this was a way of getting at them. Of course civil servants get mileage allowances which are far greater than those given to people in outside employment. My gut feeling is that when this change was being considered in either Deputy John Bruton's time or in the time of the present Minister that was the basic idea behind the change.

It was an accepted principle of benefit in kind legislation until about five years ago that one should be taxed on the actual cash benefit. This is completely arbitrary and goes against that principle. People will now be assessed on a percentage of the cost of the car willy-nilly irrespective of whether or not it is a benefit. I see no justification for this. The amount of money collected will be quite small because I imagine employers will find ways of getting around this in some way or other. I will not go into the problems created for the motor industry at this stage but I assert that this change is completely unnecessary. That is my honest opinion.

Many of the points raised so far are points which can more relevantly be raised on the appropriate section when we come to Committee Stage. I understood the resolutions would be formally agreed to and discussion would take place on the relevant sections on Committee Stage.

With regard to the points raised by Deputy Bruton, it was intended that about £2 million additional revenue would come in this year. In the proposals in the Bill the amount will be £1.5 million approximately. I do not think any problems will be created for the motor industry or that there will be an incentive created for new cars. What is being done is a real benefit in kind. That would have been the situation in Deputy Bruton's budget also.

In reply to Deputy McCreevy, if one wants to be fair one must take the actual cost of a car as a determining factor. With regard to his argument about mileage allowances, I said on Second Stage that I was looking very carefully into that aspect and it would be a logical step to move towards correcting the situation.

Question put and agreed to.

I move:

That, as respects the year 1982-83 and subsequent years of assessment, an individual who has a preferential loan or loans from his employer shall be chargeable to income tax in the manner and to the extent specified in the Act giving effect to this Resolution on the amount representing the difference between the amount of interest, if any, paid or payable on the loan or loans and the amount of such interest calculated at a rate specified in that Act.

Would the Minister indicate the date on which this will take effect?

There is a problem here to which I would like the Minister to direct his attention between now and the time at which we reach the relevant section on Committee Stage. This proposal appeared for the first time on 2 June and so it does seem a bit unfair to backdate it now to 6 April. If people had known this was in prospect they might not have entered into commitments on the basis of receiving these loans since this proposal will diminish the value of the loans and put their recipients in a different situation. They find themselves caught now. This retrospective legislation is a bit unfair. Would it be possible for the Minister to implement this from 2 June since no notice was given of it in the budget? There would be no objection to this. This proposal was not contained in the budget.

This matter is subject to amendment later on in the name of the Deputy at which point it can be discussed fully. With regard to commitments entered into prior to 2 June, the fact is what was intended was fairly specifically adumbrated in the budget statement on 6 March.

It was not in the budget statement.

It certainly was. I gave notice of it on 25 March. It is normal practice that tax measures operate from the beginning of the financial year on 6 April.

There was no reference to this. Would the Minister refer me to the specific passage where he gave notice of this?

I have not got the actual reference but, if the Deputy looks at page 27 of my budget statement he will see I said:

As a consequence of the change in the income tax reliefs for personal loan interest anounced on 27 January, some amendments may also be necessary in the provisions relating to tax relief for preferential loan interest. I am looking at this matter in the context of the Finance Bill.

Question put and agreed to.

I move:

That section 21A (1) (inserted by the Finance Act, 1978 (No. 21 of 1978)) of the Finance Act, 1974 (No. 27 of 1974), shall apply, as respects assessments for the year 1982-83, as if the following paragraphs were substituted for paragraphs (a) and (b)—

`(a) the amount of tax so chargeable for the year 1982-83 shall be reduced by one-half of the rates payable for the local financial year preceding that year of assesment;

(b) in computing the said profits or gains for the year 1982-83, the sum to be deducted in respect of the rates payable for the local financial year preceding that year of assessment shall not exceed one-half of the sum which, but for this paragraph, would be so deducted and, apart from the first-mentioned sum, no other sum shall be deducted in respect of rates;'.

The purpose of this resolution and the purpose of the amending section in the Finance Act is that in the tax year 1982-83 only 50 per cent of rates payable will be allowed as a credit against income tax payable by farmers. After 1982-83 rates payable are not going to be allowed against a payment of tax. If that is going to be the case, is it the Government's intention that agricultural rates are going to be abolished next year?

That was the commitment given by the previous Government and the present Government and is what leads to this provision in the Bill.

Question put and agreed to.

I move:

That, as respects any capital expenditure on or after the 6th day of April, 1982, the provisions of section 22 (inserted by the Corporation Tax Act, 1976 (No. 7 of 1976)) of the Finance Act, 1974 (No. 27 of 1974), under which allowances are granted for capital expenditure on farm buildings and other works, be amended in the manner and to the extent specified in the Act giving effect to this Resolution.

Question put and agreed to.

I move:

That any allowance or relief for the purposes of income tax and corporation tax in relation to expenses incurred on or after the 26th day of March, 1982, in respect of business entertainment (including hospitality of any kind and gifts) shall be disallowed in the manner and to the extent specified in the Act giving effect to this Resolution and that provision be made in that Act for disallowing for the purposes of income tax and corporation tax, capital allowances in respect of assets used for such entertainment.

Question put and agreed to.

I move:

That relief from income tax and corporation tax in respect of interest on certain loans be restricted in the manner and to the extent specified in the Act giving effect to this Resolution.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution so as to secure, in the manner and to the extent specified in that Act—

(a) that corporation tax shall be charged for the financial year 1982 and each subsequent financial year, at the rates of 50 per cent., 40 per cent. and 35 per cent. instead of at the rates of 45 per cent., 35 per cent. and 30 per cent.,

(b) that corporation tax assessed for an accounting period ending on or after the 6th day of April, 1981, shall be paid within the time provided for in the Act giving effect to this Resolution, and

that, as respect corporation tax charged by assessments made on or after the date of passing of the Act giving effect to this Resolution, interest on overdue corporation tax shall not be remitted under section 145 (3) of the Corporation Tax Act, 1976 (No. 7 of 1976), if the corporation tax is paid later than one month from the date on which it becomes due and payable.".

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution so as to secure, in the manner and to the extent specified in that Act—

(a) that the charge to capital gains tax, or to corporation tax, as may be appropriate, in respect of chargeable gains shall be increased.

(b) that capital gains tax on any chargeable gains which, on a disposal, accrues to a person who is not resident or ordinarily resident in the State, may become payable at a date earlier than the time at which such tax would otherwise be payable.

(c) that a secondary liability to capital gains tax may be imposed in the circumstances specified in the Act giving effect to this Resolution on any person acquiring an asset to which paragraph 11 of Schedule 4 to the Capital Gains Tax Act, 1975 (No. 20 of 1975), applies, where the consideration for acquiring the asset is of such a kind that a deduction cannot be made from it under subparagraph (2) of that paragraph,

(d) that companies shall be charged to capital gains tax, and not to corporation tax, on chargeable gains accruing on disposals, made on or after the 28th day of January, 1982, of development land, as defined in the Act giving effect to this Resolution,

(e) that in relation to any disposal of such development land made by any person on or after the 28th day of January, 1982—

(i) the relief provided for in section 3 of the Capital Gains Tax (Amendment) Act, 1978 (No. 33 of 1978), shall be restricted,

(ii) the relief provided for in section 28 of the Capital Gains Tax Act, 1975, shall not be allowed,

(iii) the relief provided for in section 5 of the Capital Gains Tax (Amendment) Act, 1978, shall not be allowed,

(iv) relief for losses shall be restricted, and

(v) the relief provided for in section 25 of the Corporation Tax Act, 1976 (No. 7 of 1976), shall be restricted, and

(f) that relief for certain expenses be given, in the computation of the profits of assurance companies, firstly, against arising from the investments held by such companies in connection with their life funds and, as to any balance, against the amount included in those profits in respect of chargeable gains.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution so as to secure, in the manner and to the extent specified in that Act, that the rate of interest chargeable on amounts of income tax, sur-tax, capital gains tax, corporation profits tax and corporation tax undercharged by reason of the fraud or neglect of any person be increased.

Question put and agreed to.

I move:

That, as respects dividends paid on or after the 26th day of March, 1982, on a holding of shares of a class to which section 371 of the Income Tax Act, 1967 (No. 6 of 1967), applies, provision be made in the Act giving effect to this Resolution, so as to secure that the period of six years mentioned in the said section 371 shall be increased to ten years.

What is the purpose of this amendment?

This relates to section 60 of the Bill which provides for the extension from six to ten years of a time limit in section 371 of the Income Tax Act, 1967, which counters a tax avoidance device known as dividend-stripping.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution for the imposition of a duty of excise in the manner and to the extent specified in that Act on the issue in the State of passenger tickets relating to travel out of the State by sea or by air.

Question put and agreed to.

I move:

(1) That provision be made for the imposition of charges to value-added tax in the manner and to the extent specified—

(a) in section 72 of the Act giving effect to this Resolution, in relation to certain services relating to supplies of immovable goods,

(b) in section 73 of that Act, in relation to supplies of services without entitlement to consideration,

(c) in section 76 of that Act, in relation to the supply of goods while warehoused,

(d) in section 77 of that Act, in relation to the collection of tax on imported goods,

(e) in section 79 of that Act, in relation to the supply of services by barristers, solicitors, accountants and actuaries and rent and debt collection, and

(f) in section 80 of that Act, in relation to supplies by registered persons within the customs-free airport.

(2) That provision be also made in the manner and to the extent specified in the Act giving effect to this Resolution—

(a) in respect of the application of value-added tax to services consisting of the training of horses, and (b) in respect of the application of value-added tax to the supply, while warehoused, to unregistered persons of goods liable to excise.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution for—

(a) charging a stamp duty, in accordance with the provisions of that Act, at the rates specified in that Act on statements of certain amounts required by that Act to be delivered to the Revenue Commissioners by banks, and

(b) imposing, in accordance with the provisions of that Act, a penalty in respect of non-compliance with such of those provisions as relate to the stamp duty.

Could I ask the Minister to indicate what this refers to?

This resolution relates to the section of the Bill imposing a levy on banks.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution for—

(a) charging a stamp duty, in accordance with the provisions of that Act, at the rate specified in that Act on statements of certain amounts received by insurers in respect of premiums required by that Act to be delivered to the Revenue Commissioners by insurers, and

(b) imposing, in accordance with the provisions of that Act, a requirement for the payment of certain interest in respect of non-compliance with such of those provisions as relate to the stamp duty.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution for imposing, in the manner and to the extent specified in that Act, an increase in the rates of stamp duties chargeable on certain policies of insurance, certain conveyances and transfers of property to relatives and certain duplicates and counterparts of instruments and in the rates of certain stamp duties chargeable at the rate of 50p.

The Minister will possibly be aware here of the fact that there were representations made to me by a company who were concerned in the sale of very small life assurance policies costing £3 or £4. It was felt that this charge, although very small in terms of a substantial life assurance policy, would cause problems for this company. I understood, when the Minister referred to the fact that I was the only person who claimed to have discussed amendments with this company, that these discussions concerned the problems of this company who had approached both the Minister and me. They conveyed to me that the Minister, or someone acting on behalf of the Minister, had conveyed to them that if the Minister thought that we would object he might propose amendments on Committee Stage to relieve the position of these companies, so that they would not go out of operation because a 25 per cent charge would be put on the policies. The Minister is in a better position than I am to inquire into the validity of their case and I would like to know the outcome of this inquiry. Has he any intention of doing anything to alleviate the position of this company?

I have been considering the point which the Deputy has also been consulted about and later on, on Committee Stage, I hope to introduce an amendment which has been circulated.

Question put and agreed to.

I move:

That section 41 of the Finance Act, 1970 (No. 14 of 1970), be amended, with respect to bills of exchange and promissory notes drawn on or after the date of the passing of the Act giving effect to this Resolution, by the substitution of "5p" for "3p" in both places where it occurs.

Question put and agreed to.

I move;

That provision be made in the Act giving effect to this Resolution for charging a stamp duty on a conveyance or transfer on sale of any property (other than stocks or marketable securities), being a conveyance or transfer to which section 19 of the Finance Act, 1952 (No. 14 of 1952), applies, at the rate of £1 for every £50 or fractional part of £50 of the amount or value of the consideration for the sale or, in the case of a voluntary dispositioninver vivos, the value of the property.

Question put and agreed to.

I move:

That subsection (6) of section 5 of the Capital Acquisitions Tax Act, 1976 (No. 8 of 1976), be amended in the manner and to the extent specified in the Act giving effect to this Resolution so as to provide for the extension of the application of the subsection to certain contracts and agreements entered into after the 28th day of February, 1974.

Question put and agreed to.

I move:

That the Second Schedule to the Capital Acquisitions Tax Act, 1976 (No. 8 of 1976), be amended so as to provide that capital acquisitions tax be computed on the aggregate of the taxable values of taxable gifts and taxable inheritances to which the same appropriate Table in that Schedule applies and which are or were taken by a donee or successor on or after the 2nd day of June, 1982.

There is a considerable need to ask the Minister to clarify publicly the precise import of motion No. 22. The Minister indicated that in future gifts and inheritances received by a beneficiary from different sources would be aggregated to determine capital acquisition tax liability. Under the existing arrangements, as I understand it, only gifts and inheritances acquired from the same disponer are added together. It now appears that the Bill provides that aggregation would apply to benefits within each particular class of beneficiary but not across classes.

A serious situation has developed here in relation to what is now contained in the Finance Bill because, as we know, section 94 provides for the aggregation of all gifts and inheritances taken by a donee from all disponers within a particular class to which the tables refer. These tables are in the third schedule of the Capital Acquisition Tax Act, 1976. Gifts and inheritances made before 2 June 1982 are ignored under the CAT schedule. For example, it appears that an individual who received £150,000 from each of his parents prior to 2 June under this resolution and amendments can now receive a further £150,000 from either or both parents without liability. Whereas up to now, one had an exemption to the extent of £300,000, it now appears, from my reading of the resolution and examination of the third schedule of the Capital Acquisition Tax Act, 1976, that somebody has convinced the Government that the figure should be increased to £600,000. My interpretation of the last actions of the former Minister, Deputy Bruton, was that he did not intend at any stage that that should be so. Has a new provision been made or is my interpretation incorrect? If it is now so — and I shall finish the point — it means that whereas up to now a parent could give £150,000 to a son or daughter, and another parent could give £150,000 — a £300,000 exemption without liability — it appears that that is now being increased to £600,000. I may be wrong but, if there is a drafting error, I should be glad to hear it. As I understand it with regard to Resolution No. 22 we are on to a very major issue here.

I must say I do not understand the thinking behind this section of the Bill. I am inclined to agree with Deputy Desmond's interpretation. I do not understand the need for the changes in the contents of the Bill, in the wording of this section. Indeed my interpretation of that section would suggest that the changes have a sinister intention which can do no good whatsoever, in fact the reverse, can do a lot of harm. I should be glad also if the Minister would clarify this section of the Bill and explain the need for the changes in its wording.

Probably the reading of the situation has led to this query. The fact is that there will be greater liability under these provisions. As regards the points raised about having this apply across classes, that could not be done; there were technical difficulties there. Therefore it was within the classes only that we could do it. The point raised about greater benefits accruing from this is not true. The situation up until 2 June was that a child could get up to £300,000 from parents. From here on, that is not so; they can get only £150,000.

I am not convinced——

The Deputy may ask a question now. We are now in Committee and he has made his speech on the Second Stage of the debate.

I appreciate that I can raise the matter at length on section 94 of the Bill. But my question is: is it true that there has been a quite deliberate change in the provision whereby, within the classes, it is now possible for a parent to give, or for an individual to receive from his parents, a further £150,000 in total from either or both of them without liability? That is my reading of it; I may be wrong but I read it that way. For example, are we ignoring gifts made prior to 2 June 1982?

I have here, which may be of help to both the Minister and the Deputy, the Principal Features of the Budget — the January budget — which states that all gifts and inheritances received by a beneficiary from all sources will in future be aggregated to determine the tax liability on each benefit. It says: "will in future be aggregated".

In other words there is there an ambiguity which could be exploited and would negative the whole intention of the Bill. I am not a parliamentary draftsman but I have been advised as well, and I take the advice I have been given, that there is ambiguity or a loophole here that could be exploited, perhaps not at all intended by the Minister but nevertheless the danger exists of an interpretation such as that outlined by Deputy Desmond.

We intend to give effect to the points raised by the Deputy; there is no question about it. We shall go into greater details on it in the particular section. As I have said, before 2 June one could receive up to £300,000 but, from here on, 2 June, one can get £150,000 only. In so far as retrospection is concerned, if one has received the £300,000 before one cannot get another £150,000 now. That was another point raised by Deputy Desmond.

Is the Minister saying that persons who have received gifts prior to 2 June are not now in a position to receive further gifts without liability, which is my interpretation of the section?

Within the same classes the Deputy is right.

Is the resolution agreed?

I want to clarify this with the Minister: we are now saying that persons can receive gifts within the same class having already received gifts of up to £300,000.

I said they cannot receive gifts within the same class, get £300,000 prior to 2 June and another £150,000 after 2 June. That cannot be done.

Might I ask the Minister for further clarification? As I understand it the position is the opposite to what Deputy Desmond was maintaining — that the gifts will be aggregated and the one exemption limit will apply. Up to now a father could give a gift of up to say, £150,000, a mother could give a gift to her son of up to £150,000 as well, different thresholds related to different blood relationships, uncles to nephews and so on. Each time a gift was given the particular exemption limit for that uncle to nephew would apply. Now what will happen is that if there are three uncles, whereas until now they could each give up to their threshold, the effect will be that there will be one exemption limit and the three figures will be aggregated, giving one exemption limit. Therefore it is a penalty section, the opposite to what Deputy Desmond was maintaining, and there will be greater tax revenue collected under the amendment put forward. Am I correct in my understanding of it?

That is exactly the position. As I said at the outset, there will be greater liability under the provisions here.

I think the Minister should advert to section 94 (a) 4. which says:

Subject to the provisions of paragraph 6, the tax chargeable on the taxable value of a taxable gift of a taxable inheritance, in the case where the donee or successor has previously taken one or more taxable gifts or taxable inheritances on or after the 2nd day of June, 1982, to which the same appropriate Table applied,...

The reference is to gifts received previously but on or after 2 June 1982.

Yes, there is no aggregation before 2 June. It is since the publication of the Bill that aggregation will come into play.

Perhaps the Minister would confirm my understanding on two examples. If you have a beneficiary who, prior to 2 June — with the exemptions that applied up to then — received £150,000 from each of his parents no liability was incurred on that £300,000. He can now receive, after 2nd June, a further £150,000 but would be liable for the duty on that £150,000 if it came from one of the parents; is that the case?

The fact is that he cannot get an allowance for the second £150,000 — he has already got up to £300,000 and he has got £150,000 of it from one or other of the people who will be giving him the second £150,000, so he would be taxable on it.

If the same person, having received £300,000 from his parents before 2 June, receives £150,000 from an uncle after 2 June, the £150,000 exemption would apply in that case under what the Minister is proposing?

It is not £150,000 for an uncle, it is £20,000 and he would get the £20,000 then.

I should like this clarified somewhat further. If I might take an example and put it to the Minister. Let us take a situation in which a mother and father who are tenants in common of a firm, we have the acquisitions prior to the Finance Bill 1982 and they are not cumulative; then after 1982 the position will be more open. I might illustrate it as follows: we have the father who gives the transfer, during his life, to his son of £250,000, tax free. This is the prior-to-1982 situation. Then we have the after-1982 situation, where the mother wills her portion of £300,000 tax free and we have the £150,000 threshold. So the farm relief would be half the value up to £200,000, and we get the £150,000. In this example £550,000 can be transferred tax free. Would the Minister clarify my fears on that one?

The point raised by Deputy Spring is correct, but we will look into it in greater detail when we reach it on Committee Stage.

There have been a number of newspaper articles on this. That is how the matter came to my attention. There have been several articles by experts on agricultural tax. I am left under no illusion that, whereas my former colleague, Deputy J. Bruton, was definitely holding the line and the limit was £300,000, there has been an amendment which has been quite deliberately put in. I want an assurance from the Minister that on Report Stage the matter will be put right. It is a very serious matter because now, in relation to capital acquisitions tax, the exemption limits have been raised from £300,000 to £550,000. That is because aggregation now appears to be permissible. Will the Minister agree to re-examine the point raised and ensure that on Report Stage, if an amendment is necessary, it will be put in to make it absolutely clear that the point raised by Deputy Spring and I as well as my other colleagues cannot be construed in that way?

Deputy Barry Desmond is trying to create an impression that details of this were announced previously. Neither the January nor the March budget went into details. It was not until 2 June that details were announced. the details which were announced are as we are dealing with here. We will still be dealing with the matter on Committee Stage — we do not have to wait until Report Stage — when we can go into all the points that have been raised. I can allay the fears of Deputies. What was intended on 2 June is still the case. That is the reality. As I have already told Deputy McCreevy, there will be greater liability in this case.

I have the principal features of the January budget and the relevant sentence is as follows:

All gifts and inheritances received by a beneficiary from all sources will in future be aggregated to determine the tax liability on each benefit.

The question there is of interpreting whether the "in future" refers to "received and aggregated" or just refers to "aggregated". This is the relevant consideration. The budget statement of January said:

Firstly, there will be a new aggregation basis for the tax. Under existing arrangements, only gifts and inheritance acquired by an individual from the same disponor are added together. This enables someone to obtain, for example, £150,000 from both of his parents free of tax. In future, all gifts and inheritances received by a benificiary from all sources will be aggregated to determine the tax liability on each benefit.

The "in future" could refer to "received", that is only gifts received in future. The wording in both instances in the January budget is not crystal clear.

It was repeated in the March budget as well. I have already explained that technical anomalies about doing it across the classes have arisen. It is not possible and it would create all sorts of confusion depending on the times of transfer.

I want to draw the Ministers attention to a recent article by Mr. Joe Hickey, secretary of the IFA tax committee, who outlines very clearly how it should be done. I will quote the particular example.

He is a fine man but he is not a revenue commissioner.

He writes very clearly. He said in this article:

To reduce the burden of Gift Tax it is important that the farm be owned jointly by husband and wife as tenants — in common — not as "joint tenants". A property does not have to be held exactly 50-50 by husband and wife; it can be held between the two in any agreed portion. With good tax planning, it is possible to avoid tax on property worth £600,000 in land, livestock and machinery. Passed on directly from father to son, this estate would carry a gift tax of £137,000 — a staggering figure. A planned approach on a £600,000 farming enterprise would be:

£250,000 given to wife or tenant in common, this in turn would be willed to the succeeding son. £250,000, willed by husband to the succeeding son. £100,000, willed by husband to child — or wife of succeeding son. In this way gift tax would be nil.

My assertion is that the particular position here has been changed between the January budget and the March budget. Has a change been put in to give effect to this? If it has not been put in or if it is in by way of error, it will have to come out again either on Committee Stage or on Report Stage.

As I said earlier, the only change that was made was that it was not possible to do it across classes. It has been done within classes. I am doing what I can do. I am thankful to Deputies for raising these very important points at this stage which will give us an opportunity to examine very carefully the detailed points raised and, if there are anomalies or loopholes, we can together move to correct them on Committee Stage.

I will go along with that.

Question put and agreed to.

I move:

That, as respects the year 1982-83 and subsequent years of assessment, the provisions of the Income Tax Acts relating to an additional allowance for widows and others in respect of children be amended in the manner and to the extent specified in the Act giving effect to this Resolution.

Question put and agreed to.

I move:

That provision be made in the Act giving effect to this Resolution so as to secure, in the manner and to the extent specified in that Act, that the application for the purposes of capital gains tax and corporation tax of section 9 of, and Schedule 2 to, the Capital Gains Tax Act, 1975 (No. 20 of 1975), be modified.

Will the Minister indicate what this is?

This resolution relates to two sections which it is intended to insert on Committee Stage — amendments Nos. 93 and 94 as new sections 61 and 62. They will thus appear in Chapter 10 of the Bill. That is the chapter containing provisions specifically related to preventing avoidance or evasion of tax. Both sections would have the effect of denying taxpayers the right to reduce or eliminate the tax bill by availing of possible loopholes in the law relating to taxation on chargeable gains. That is why the new legislation is necessary.

It would appear to be correct that this is an amendment which was not circulated yesterday but this morning.

That is true. It was not circulated until this morning.

This makes it a little less easy to agree to this resolution than to others dealing with matters about which we are somewhat more familiar.

I was trying to be helpful, in doing this now because, if the amendments were not published until a couple of days' time, the Financial Resolution would not arise until then. I did as much as I could before that.

Fair enough, I accept that. I am not at all suggesting that the Minister is acting other than in the best possible manner. However, I would like him to elaborate somewhat on what exactly is involved here. Very often anti-avoidance measures devised at short notice — as this would seem to be, given that it was circulated only this morning — can have all sorts of unintended effects which can cause great problems. An example as far as property transactions are concerned was the 30 per cent witholding tax which was introduced here on budget evening with very little prior notice. The Minister has reduced the tax, but it caused many problems. If better notice had been given and more time had been available to the general public — some of whom are greater experts than we are, individual experts on matters of tax evasion — they could have discussed this and the mistake, which has been somewhat remedied, in regard to withholding tax would not have been made in the first instance. The mistake was made because the matter was sprung out of the blue, without any advance public discussion and on budget night. It is useful to have this opportunity of discussing the Financial Resolution and I ask the Minister what exactly he has in mind so that between now and Committee Stage people who are interested in reading the Official Report or what is reported in the newspapers will have the opportunity of making their views known to the Minister and to us here. I would be glad of somewhat more detail on the exact import of amendment No. 93 to which this resolution refers.

I will give some available details. The proposed new section 61 is designed to combat schemes which have already come to the attention of the Inspector of Taxes and are understood to be in widespread use by tax planners. If not negatived, such schemes could result in the loss of millions of pounds of tax.

One scheme involves a company acquiring shares in a connected company but at far less than the true value of the shares and making use of section 9 of the Capital Gains Tax Act of 1975 to substitute the much higher market value on a subsequent sale of the shares, thereby greatly reducing the capital gains tax liability. Another scheme involves a person paying too much for shares in a controlled company which is almost insolvent, so as to convert a bad debt owed by this company to the person into an allowable loss which he can then offset against chargeable gains arising in other disposals. The new section 61 will counter these schemes by providing that, where shares are acquired in these circumstances, the amount to be allowed as a deduction for capital gains tax purposes on subsequent disposal will be the actual amount paid for the shares in cases where the amount is clearly less than the true value, and the true value of the shares in cases where that value is clearly less than the artificially high price paid for the shares.

I can understand the second part of the proposed new section and how there would be a need for that. I cannot, however, understand the first part.

Neither can I.

That is why I am raising the question. It strikes me as odd. If I understood the Minister correctly, the company would acquire shares in another company at less than the true market value of those shares and those shares would be disposed of later, back to the original company by some internal transaction of that nature. I thought that capital gains tax would accrue any way between the artificially depressed value and the market value and that when they came to be sold at the market value they would pay capital gains tax on the difference between the artificially depressed price initially used and the second price. I do not understand why that is not the case already in existing legislation and why this section and the resolution which is giving it effect are really necessary in respect of the first part of the Minister's statement.

What the Minister said in the second part is self-evident. That is simply converting a bad debt into a loss, which is clearly a sensible thing to do if one is a taxpayer but a very sensible thing to stop if one is Minister for Finance. In the interests of good legislation, the Minister might explain the first part a little further if he can, so that those who are interested in the subject could bring their minds to bear on it.

The best I can do at this stage is to give the Deputy an example. Company A were set up in 1975 with issued share capital of 100,000 £1 ordinary shares, 99,900 of which are owned by company B. Company A purchased agricultural land for £100,000 which, in 1982, is worth £1 million because of rezoning. The shares are thus worth £10 each. Company B wish to sell the development land and to do so by selling all their shares in Company A. I know this is difficult to follow. If they did so, they would face a capital gains tax charge on the difference between £1 million and the indexed value of the shares on the date of issue and expenses of sale — say a total of £350,000. The tax would be 50 per cent of £650,000, that is £325,000.

Before the sale, company B execute an artificial scheme to reduce this liability. They subscribe for 100,000 additional £1 shares in company A at par. Company A now have assets worth £1.1 million — land worth £1 million and cash £100,000. Company B owns 199,900 shares worth £5.50 each. However, the real cost of the shares was £199,900, that is £1 each.

If section 9 (1) were to apply on the sale of the shares for £1.1 million, the deductible cost of the additional 100,000 shares, which cost £100,000, would be their market value — that is, £550,000 — and the taxable gain would be only £200,000, that is, £1,100,000 reduced by the aggregate of £350,000 and £550,000. The tax bill would be reduced from £325,000 to £100,000. That is the example I can give you. One would have to have a table in front of one to fully understand it. We can make arrangements as we deal with the amendments.

One could have a little seminar on it.

It is basically an evasion method which we must move to correct.

I understood that capital gains tax was based on actual capital gains. I would also have thought that the actual value of the shares allowed by the Revenue Commissioners would have been the actual money subscribed for the shares and that in this case the value of the shares for capital gains tax purposes on the second subscription of £100,000 would, in fact, be £100,000. He would not be allowed to subtract £500,000, which is an artificial value of what was an actual subscription of £100,000.

The resolution is to provide for what the Deputy is asking for.

My understanding is that the position would be as the Deputy has said. When Company B subscribed the second £100,000 and paid the £100,000 at par, I had thought that would be caught. The shares would have been sold at less than market value but under capital gains legislation it would be deemed that a capital gain would arise. I know that when a farm is sold to a relation the vendor might want to give it at less than true cost — the land might be worth £500,000 but a nephew might be let off with £100,000. Capital gains tax arises there even though there was not an actual capital gain — it would be a deemed capital gain. Surely the same situation would arise when company B subscribed at par, which would not be the true market value of the shares. Perhaps there was a loophole all along.

The company would not be selling shares, they would be issuing them, and in such a case capital gains would not arise.

Was there much abuse of the loophole?

There probably was, but the tax rate was not so high. Now that it is high it could make an enormous difference.

I take it the Minister will know everything about this when we reach it on Committee Stage.

It takes many people together to arrive at a knowledge of these complex measures. I will give the Deputy all the assistance I can.

Question put and agreed to.