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Seanad Éireann debate -
Thursday, 19 Jul 1934

Vol. 18 No. 32

Finance Bill, 1934 (Certified Money Bill)—Report (Resumed).

I move recommendation No. 2:—

Section 2, sub-section (2). After the word "maintenance" in line 6 to insert the word "management."

The Minister was good enough yesterday to indicate more or less that no line of argument which might be made would make him change his mind to accept any of these recommendations. Consequently, it may seem more or less futile to give any reasons for them, but our business is to give reasons for what we believe to be correct, whatever the consequences may be. In moving this recommendation I propose to state briefly what I consider to be the case for it. As was pointed out yesterday it is agreed that at the present time it is possible for persons, where the valuation is more than one-sixth below the rent, to make the claim that they shall be charged on the actual income and not on Schedule A. According to information given to me, at the present time these persons are entitled to include reasonable management charges amongst expenses. The Minister considers that he is making a concession in this particular case. We will not reargue the word about which we slightly differ, but it does seem to me that when the Minister is endeavouring, even to the extent of the £5 which he has agreed to, to meet the cases which have been made he surely might treat them in the same way as they are treated at the present time and include reasonable management expenses.

I think I am correct in stating that the effect of the new section introduced by the Minister in the Dáil is to provide that the person who makes this claim is really in the hands of the Revenue Commissioners. As it stands at the moment it is their opinion that will decide. The matter is one almost entirely in their discretion. That means that they will exercise their discretion and give this in every case which they consider reasonable. If the Minister would only change his mind and accept the word "management" it does not mean that the individual would be entitled to charge any sum on earth and say: "that is management expenses." It means, of course, that he would have to satisfy the inspector and, if necessary, the Revenue Commissioners themselves that the sum included for management is reasonable, just as he has to do in the case of repairs. I am in a difficulty because I cannot see any case now for suddenly excluding management. It seems to me that there is a perfectly reasonable case for including it, if you agree, as the Minister does, up to the £5. We differ about the figure. The Minister agrees that there are certain landlords who have these small properties who can prove that in certain years, in order to keep the properties in decent repair and condition, they spent a certain sum on repairs and who actually did not get from these properties a sum that was equal to the valuation.

Where there are a number of properties it is well known that these people cannot collect the weekly rents themselves. Consequently, there is expenditure involved in collecting the rents. Generally speaking, it is the business of the agent who collects the weekly rents to report whether repairs are necessary. It seems to me that management includes to a very large extent, if not the actual repairs themselves, at any rate the cost of the supervision which leads to the repairs and the keeping of the property in a decent condition. I would again urge on the Minister that he might be a little more generous even as far as the £5, and see that there is a case for including reasonable management expenses. I do not want to go into details as regards the word "management" for the reason that the whole section is at the discretion of the Revenue Commissioners. Therefore, in practice it would mean that what they would allow as management would also be at their discretion.

I cannot this year, at any rate, accept this recommendation because I am anxious to see how the concession, in the manner in which we have given it, will work out. Apart altogether from that, there is a certain question of principle involved here, the ramifications of which may extend far beyond the concession. The law assumes that every person chargeable for income manages his own property himself. We look upon the management of property of this sort as a sort of personal service rendered to an individual which he must pay for out of his net income. That, I say, is the general assumption because, as regards property generally and investment income generally, except investment income derived by financial companies, there is now no provision under the existing law for allowing management expenses. Generally speaking, the law assumes that a man in receipt of investment income of any kind manages his investments himself, and that if he does employ somebody to manage it for him it treats such expenditure as one of the ways in which he spends his income and not as a means through which he secures it. We also feel that the granting of an allowance for management in such cases would possibly lead to evasion and to fraudulent claims in many cases. I do not wish that to be related to the particular case which has come under my consideration, but Senators can see that it would be very difficult to allocate management expenses between one class of property and another. We have, in that connection, to remember that the owner of cottage property will almost invariably have other classes of property as well in respect of which he is likely to be very much undercharged for income tax purposes.

Those are the general considerations which motivate us at the moment in asking the Seanad not to seek to enlarge upon the concession. I have used that word because I do not think there is any other which properly describes what we are doing. We are giving a statutory right now: something that was formerly a matter of practice, and sometimes of unauthorised practice—I mean in the sense that we have followed the British precedent for which there was no statutory authority but which possibly could have been regularised before this. In any event, our position and the position of the Revenue Commissioners is that we must have an opportunity to see how this thing works out before we establish a principle which it might be very difficult to limit merely to the particular classes of property from which the income under consideration is derived. If we granted it to a £5 cottage, why might we not be called upon to grant it in the case of larger estates and, ultimately, to investment income of all sorts, in which case we would be called upon to make allowances in respect of auditors' and accountants' fees, that is for the personal services which a person who enjoys income pays another person to render to him in the same manner that he would pay a valet for the service which he renders him or a housekeeper, a cook or some other domestic employee. That is the principle which is at stake. We cannot grant a concession in this matter and, at the same time, be immune from further pressure in the case of expenditure on other properties as well.

I want to ask the Minister if I am not correct in stating that at the present moment income tax is paid on the full income in the case of business property, and that where the principle is adopted income tax is paid not on the valuation but on the actual income. Management is allowed in the case of business premises at the present time. Where a company has a number of properties let out to others management expenses are allowed as a charge.

There is a difference there. In connection with real property of this sort we do allow a person the cost of repairs and maintenance. We permit him to keep the property in a rent-earning condition.

The same class of business?

A person who receives a dividend from a company cannot set aside some part of it to be tax free as an insurance to secure that he will continue to enjoy that interest or dividend for a long period of years. A company may, but here again a company will have to meet the charge on its profits. In the case of property, we do make a special allowance, the amount that is necessary to keep the property in repair so as to retain it continuously in its rent-earning condition. That is, I think, a rather peculiar privilege which property enjoys, and the effect of this recommendation would be to super-add to it something else.

But is it not the case that the owner of a large estate who has rents to receive in respect of it, is allowed the ordinary percentage, 5 per cent. or whatever it is, on the rents that he collects? Surely that is the case. There is not any analogy between the case of the owner of a small property like this under £5, and paying a man for attending to your investments. None whatever. Take the case of an old lady. She owns a number of small houses. She cannot go every Friday or Saturday to collect her rents. Is it not only just that she should be allowed a reasonable sum as commission for collecting these rents? That is one of the things the Revenue Commissioners will have to decide. They will have to say whether or not it is just—it may not be just in one case but it may be just in another— that management expenses ought to go in if there is to be justice in these cases.

Cannot the Senator see the anomaly which exists? Our Schedule A assessments are based upon net rental paid by a tenant who bears the cost of repairs.

We are only arguing the case where they are not paying under Schedule A.

Once we allow the principle of management to be introduced I do not see how we would be able to resist a demand to include management so long as the general body of the law remains as it is, in the case of property whose valuation exceeds £5. We are taking £5 as an arbitrary figure, because we feel that in one case at any rate hardship would be occasioned if we insisted on Schedule A assessment. Only one case of the kind was brought to our notice so far. I have asked the Seanad to let this matter stand over until we have had 12 months' trial. If there are more cases, and if they are such as would warrant the law being changed, and if the hardship would be appreciable, I would be prepared to consider this question. I feel that we should not introduce the question of allowances for management at this stage, our valuations being in an anomalous position in relation to the income tax law.

I am connected with a business which lets business property. Repairs have always been allowed, because we pay on the actual amount of the rent received.

Under Schedule D assessment.

It is a case where payment is made on the full amount of the rent, less charges. In the case of business we have to show the full amount of rent received and against that there are the expenses. We are entitled to charge for proper repairs, but not for alterations. Ordinary management expenses always cover the collection of rents. That is the case where the full figure is taken, but the case we are arguing is where a man chooses not to be charged in that way. These charges would include repairs. We want to include management. In other words, where a person is paying on income out of property and paying for looking after it, that position should be treated the same as a business. That principle has been accepted. I am not arguing on behalf of people who pay under Schedule A.

Am I not right in thinking, as Senator Brown suggested, that in the case of estates in Ireland, of which there are very large numbers, the practice has been to have agents who collect the rents on behalf of the owners, where the usual fee is 5 per cent. on the amount collected, and where income tax is returned as an allowance for agency fees or management expenses? I believe that to be the universal practice.

Senator Guinness is right in thinking that collection expenses are allowed in the case of the Land Commission. Really this is, if I may so put it, an awfully niggardly attitude to adopt. Either the Minister does not understand what is going on or he is trying to pull the wool over the eyes of the House by making this a case purely and simply of special pleading. He talks of management expenses for the first time. Management expenses have been allowed ever since the Lloyd George Act, which was passed before the war. Mr. Lloyd George, even in his bitterness against property owners, realised the justice of the claim of people who maintain their property or landed estates, and the difficulty of pulling and dragging, so to speak, with small tenants. He said that management expenses, insurance and repairs would be allowed on a five years average. That was a concession from a Socialist who was certainly not sympathetic towards property owners. Here the Minister comes along and throws all that aside but brings it in by a side wind. This has all grown out of the fact that repairs allowances were given. We are moving completely away from that now. We are asked to consider the case of small owners, not on valuation but in the form of net rents. We are asking the Minister to take the figure of £10 and downwards. This is a sort of petty peasant finance, instead of seeking the co-operation of people who are bearing the burdens and heat of the day.

I am sure the Minister knows nothing about what goes on when dealing with the management of this class of property, where they burn the stairs, break the windows and where, when taken into court, instalments are given and allowances made until one says: "For heaven's sake have done with it. You can have the property and I will be quit of it." Surely the Minister wants the co-operation of people who supply a real need by letting houses at 2s. or 3s. a week, in contrast to the houses that are new being built and let at rents of 10/- or 12/- a week, which the tenants will not be able to pay. The Minister comes along now and says that management expenses cannot be allowed. It is but an act of common justice and decency towards a hard pressed class of taxpayer, who really have had to take off their coats in order to deal with human problems to allow this. The Minister says that a new principle would be introduced if management expenses were allowed, and that there would be claims for management expenses by those who receive dividends. Did you ever hear anything so absurd in all your life? The Minister may smile. It is no laughing matter, because he is engendering bitterness in the hearts of people whose co-operation he should seek but whom he intends to drive off by having his pound of flesh. I can assure him that if he does not get the co-operation of that class of people it is the poorer citizens will suffer. I think his whole attitude is mean and niggardly and I say it advisedly.

I am sorry to have had to endure the strictures of Senator Sir John Keane in this matter, but I thing he is very unfair to those who accept the responsibility of being Minister for Finance, because we have to establish a principle——

A principle that was broken years ago.

I disagree with the Senator. The principle has been infringed, but in view of the anomaly which exists between valuations in this country and in Great Britain, certain property owners in this country have benefited at the expense of the general body of taxpayers. That is true. The position we are in is this: that only in certain circumstances heretofore was a person entitled as the law stood to any remission under Schedule A assessment. I do not say entitled as a matter of right, justice, and equity.

Here income tax assessment under Schedule A was based upon a wrong conception of the content of the Poor Law Valuation in this country as compared with the content of that employed in Great Britain. When Mr. Lloyd George was dealing with property owners he was aware that the assumption was that valuations were equivalent to the full rack rental of the property and in certain circumstances that rack rent—it is a word of bitter omen in this country— would not be derived from certain classes of property and that accordingly where the actual rent did not exceed the valuation by more than one-sixth certain allowances in regard to repair and management expenses might be made. But in this country the valuations were not based on the rack rents at all. They were based on the rent the property would fetch, on the assumption that the tenant paid all outgoings, except the management expenses, necessary to provide the rental income for the landlord. Under these circumstances Schedule A seems to bear no relation—except in an infinitesimal number of cases— to the true income derived by the landlord from the property. We have introduced concessions to meet cases of hardship. We can only deal with the question of income tax on general principles. If we are to be asked to put property in the same position as profits derived from an ordinary business, well and good, let us abolish Schedule A altogether and let Schedule D be applied to property in every case.

That is what you are doing.

No. We are dealing with one category. We have made a concession to meet a clear case of hardship within that. I suggest we should not extend the concession beyond what is called for in the immediate necessities of the case, because under Schedule A the property owner is assessed on something which is something much less than the true income in the overwhelming majority of cases and we can only legislate for the generality. It is the old maxim of "Hard cases make bad laws." We cannot legislate for the individual, we have to legislate for the community as a whole. If we are going to have the Schedule D rule apply to Schedule A cases, then the right thing is to abolish Schedule A altogether. If we do that, this State will benefit, and the community as a whole will benefit considerably at the expense of property owners as a class. It is not proposed to do that here. It is merely proposed to ask property owners to pay on the valuation which in many cases is very much below the net income. We have introduced a concession to meet a hard case, and I do not think it is fair or just for the Seanad to try to introduce into that concession a new principle which, if any Minister for Finance once accepted, it would have to apply to the general body of tax-payers.

Recommendation put and declared carried.

I move Recommendation No. 3:

Section 2, sub-section (2). After the word "maintenance" in line 12 to insert the word "management."

The arguments on this case are exactly the same as on the last recommendation.

Cathaoirleach

I would ask Senators to remember that we are on the Report Stage and that I am bound to allow only one speech by each Senator on each recommendation. I would ask Senators to make their case in one speech.

In this case the arguments are exactly the same as in the last but, with great respect, I would point out that at the special request of the Minister this recommendation was not taken in committee and that is the only reason for this type of argument. If it were taken in committee, the position would be somewhat different. There might therefore be a case for extending your charity beyond the ordinary rules.

Cathaoirleach

I am bound by rule.

If that be the ruling, we shall never agree to allow an amendment to stand over to Report Stage again.

Cathaoirleach

You must remember that three or four speeches were made on this question.

Not on the management question on the Report Stage.

Cathaoirleach

Yes, on the Report Stage. I do not want to get into an argument, but on the Report Stage both the Minister and the Senator who proposed the amendment made three speeches each.

The argument is exactly the same on this amendment and there is no need to repeat it.

Cathaoirleach

It is consequential at any rate and no argument is needed.

Recommendation put and declared carried.

I move Recommendation No. 4:

Section 2, sub-section (2). To delete in line 16 the words "in their opinion."

I should like very much to know from the Minister why these words were inserted. What is intended to be done by the Revenue Commissioners is to grant such relief, by repayment or otherwise, as in their opinion is just. It is quite obvious that what is intended to be done is what is just and if that is what is intended, the words "in their opinion" are surplusage and should not be there. I have no doubt that what is intended is that the Revenue Commissioners should, in fact, do what is just. But no matter how conspicuously honest an official may be —and the Revenue Commissioners in this country are conspicuously honest; probably no one has more experience of their administration than I have had in my own profession; for years I was in every important case against them and then afterwards for years I was their counsel, so that nobody knows them better than I do—even with the best of them, there is sometimes a struggle between the human conscience and the official conscience. If the Government want them to do what is just in these cases, I think that the words "in their opinion" are unnecessary and I would ask the Minister to agree to their deletion.

I should like merely to say that I have looked up some other Acts in which the words "as is just" occur and the words "in their opinion" do not appear in these Acts.

I have not very much to say in regard to this recommendation but I would remind the House of what Senator Brown has said, that the Revenue Commissioners may sometimes have to struggle between the official conscience and the human conscience. I think that if the words "in their opinion," are left in the section, it would mean that the commissioners would be entitled to give more weight to the dictates of their human consciences than they would be if they were left out. If you take out the words "in their opinion," they may feel at some one time or other that they may be on proof as to what is just, in the official sense of the term.

Oh, no, there is discretion.

The words "in their opinion" make the discretion quite clear and that is why I think it would be undesirable, from the taxpayers' point of view, to delete the words. I assume that the major issue will be raised on recommendation No. 5. I think if the Senator is anxious to secure that the human impulses of the Revenue Commissioners will have full sway, he should allow the words to remain in. Otherwise I feel that he will bind them unduly. They will feel in the position that they may be called on at any time to prove that they were justified in giving this concession. If they are put in that position, naturally they will have to make a decision in accordance with all the facts which are tangible, patent and concrete to every possible investigator. Leave it in its present form, and they will be able to take into consideration the intangible imponderables which would enable them to come to a decision in accordance with their human consciences.

I am prepared to help the Revenue Commissioners out of the difficulty in which the Minister thinks they would be put. That difficulty could only arise in the case of there being an appeal from their decision. The next recommendation which is also in my name proposes to allow an appeal from the Revenue Commissioners to the Special Commissioners. I am prepared to give up that recommendation. I do not think I could do anything fairer than that. I shall give up the right of appeal if the Minister gives up these words.

Do I understand from Senator Brown that he does not propose to move recommendation No. 5?

Cathaoirleach

Yes, if he gets this one.

That seems to be a very good bargain but I am really anxious to ensure that the concession which we have given under sub-section (2) of Section 2 will be effective and I feel that the words "in their opinion" are necessary in that case. As I say if they are not in, rules may have to be laid down for the guidance of the Commissioners and as a matter of fact more than the equities—I am told by lawyers that there is no such thing as equity in statute law—something more than these unwritten equities, will have to be taken into consideration and that, I think, will not be to the advantage of the taxpayer. I do not like to appear churlish. If the Senator is not going to move recommendation No. 5, I should like to meet him but if I do meet him, in agreeing to delete these words, I think it will not be to the ultimate advantage of the taxpayer.

I am sure it will. They will do what is just if you let them.

I shall accept the recommendation if the Senator does not move the other recommendation.

Thank you, sir.

Recommendation put and agreed to.
Recommendation No. 5, by leave, withdrawn.

Could I not make any remarks in regard to No. 5?

Cathaoirleach

No, it has been withdrawn.

Question—"That the Bill be received for final consideration"—put and agreed to.
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