Vol. 83 No. 16
I have a query in regard to the definitions of "disposition". One would have thought that everything was covered. However, it starts off with a sort of generality:
(a) any act or omission by a person as a result of which the value of his estate immediately after such act or omission is less than it would be but for such act or omission;.
Could the Minister give us some conception as to what this might mean?
Disposition obviously starts the chain of taxability. It is widely defined and covers in every way by act or omission, directly or indirectly, by one or more operations, that property may change hands or a valuable right may leave one person and end up in the possession of another. If the beneficiary takes his benefit without paying or without paying for it in full he is prima facie a taxable person, a donee or successor. The disposition must be identified and the financial source of the benefits is the author or maker of the disposition.
Most dispositions are not within the range of tax, for example, the payment of money. Ninety-nine per cent of payments of money are normal bargains. If A pays B £10,000 and gets nothing or property worth less than £10,000 in return there is a benefit to B. Where a benefit arises it is necessary to identify a disposition of the associated disponer. The tax depends on what a beneficiary takes from a particular disponer.
There are various forms of dispositions. A might give his house to B. A could assign his right to a debt due by B to him to another person C. An example of an omission would be where A has a power to appoint property to himself if he exercises the power within a certain time. If he does not do so, then the property would pass to another and there that other would be the beneficiary of the omission by A.
On this section I want to make the point that essentially this inheritance tax is a form of death duty. One must accept the Minister's point, which he has made several times, that, generally speaking, it is a form of death duty which is less than would otherwise have been paid. Nonetheless, it is a death duty and merely calling it a different name does not prevent it being so.
This is the only place I referred to on Second Stage, on the question of private woodlands which will be caught on the basis of gift acquisition tax every time there is a change of ownership whether it is by sale or a transfer of ownership by death. I am sure the Seanad has had representations in this regard.
The base of the case is that woodlands, particularly conifers and other trees which take a long time to mature, could, in the lifetime of the tree, change hands, perhaps, several times. I understand under present legislation tax is chargeable only once on the ultimate sale of the timber. Tax could arise on a number of occasions during the life of the timber. There is a case in justice for giving special consideration to this type of case. I understand the amount of afforestation or woodlands involved is only some 15 per cent or 20 per cent of the entire afforestation of the country. We would all be anxious to encourage private afforestation as much as possible. I would suggest to the Minister that this legislation will have the opposite effect of discouraging. I would like him to take a look at that again. It is, perhaps, too late now to expect that he would make any change in the Bill as it is before us now, but I think it is something that should be looked into. These people do have a genuine case in this regard.
I know the Minister has abated the valuation on the same grounds as agricultural land by 50 per cent, but it does not quite cover this case. It is quite a unique case and I think a section which deserves encouragement are the people who have private woodlands. We should do all we can, especially in the circumstances of our country, to encourage more and more private afforestation.
I strongly support Senator Russell in this. I am sure the Minister has had representations on it. My recollection is that a longer period was taken into account under the old estate duty code. There has been a precedent in regard to private timber. A period of 100 years would be more appropriate than what is proposed here. The Minister might like to comment on it and he might be able to amend it in future legislation.
I appreciate what has been said here and the representations which I received in regard to timber and I share the views of many people that timber should get special treatment. Timber has received special treatment under the Government's package of capital taxes as a result of which timber is exempt from wealth tax or capital gains tax. In other words, no capital tax will be payable while the timber remains in the hands of an owner, and it is only when timber is received gratuitously by a person by way of gift that an occasion to payment of capital gains tax could arise. In most cases, if not in all cases, the actual tax paid will be less than similar woodlands would have generated under the estate duty code.
One must bear in mind that woodlands are not planted all together at the one time. There is constant changing of cuttings and seedlings and so forth. So the appropriate value to take is market value.
As Senator Russell has accepted, agricultural property means woodlands. In relation to woodlands an amendment I tabled in the Dáil confers on any recipient of woodlands the same benefit as applies to agricultural property where it succeeds to a person who is engaged in agriculture. It does not even require that a person should be engaged in agriculture to get the benefit of the special treatment for woodlands.
Therefore the application of the agricultural advantages to timber is a significant measure of relief. The market value of growing timber will reflect the stage of growth and the risks of weather, damage and disease and so on. In the estate duty field timber was valued separately but it was not taxed until sold. The House is right in saying that. If sold its market value up to the value at the date of death was taxed at the same rate as the rest of the estate, which in many cases was quite considerable when we bear in mind that most private woodlands in this country are held by people of very substantial means. It meant that there was extortionate rate of tax ultimately payable whenever the wood was sold. In view of the lighter tax burden under the capital acquisitions tax the simpler method of taxation at market value at the valuation date and with the benefit of the 50 per cent agricultural deduction will mean that timber will be dealt with quite equitably. On reflection, I think that people will see that it is an asset which is being comparably lightly treated under the whole taxation code.
However, I assure the House that I will keep a careful watch on this matter, having regard to the fact that the national interest, both economically and from the point of view of the environment, is well served by continuing to maintain the growth of privately owned woodlands.
Is there a departure here from the estate duty practice in regard to timber?
The estate duty provisions provided that the tax was not paid until such time as a sale took place, and then the consideration was taxed at the full rate of estate duty, which could be at the rate of 55 per cent. Under the code now, the capital acquisitions tax, if payable at all—in many cases it will not be because of the high thresholds of exemption we have—will be payable on the market value as of the date of death. But that would have to take account of the condition of the woodlands at the date of death, and growing trees have a comparatively small value at any time, especially young timber. So all this would be reflected in the amount of tax which would be a paid. I would say that in many cases the amount of tax paid would be a lot less than would be paid when mature timber would be sold and then charged at the old rate of estate duty.
In one of the current measures of tax legislation there is a more favourable treatment of timberland. Is it in the wealth tax or the capital gains tax?
It is exempt as far as wealth tax and capital gains tax are concerned, so that there is no additional tax and I would say that the impact of the capital acquisitions tax will in most cases be less than under the estate duty code.
Is it not a reasonably valid argument that, having done so in the case of capital gains tax and wealth tax, one should continue doing it under this Bill? They are all part of the same package. It seems rather contradictory that it should be exempt under two pieces of legislation and not exempt under this one.
We are recognising that society has always considered that some tax should be paid in respect of woodlands when they reach the point of yielding profit to the owners. That is the position under the existing estate duty code. Now we are providing that there will be a tax payable, no new taxes, no wealth tax, no capital gains tax but an actual tax related to the value of the property on the day on which it is received as a gift. The value on that date will reflect the ongoing commercial interest of the woodlands—and woodlands have a commercial interest. If it had not got a commercial interest then quite clearly its value would be negligible. If it has a commercial interest then its value will relate to the profit which can be obtained from it. It is right that it should pay a tax appropriate to the commercial value and profit which can be obtained from it, the same as agricultural land. When we bear in mind that it will be treated at only half of its value, in the same way as agricultural property, it will be seen that the rate of tax will be relatively small. The half agricultural value was not available under the estate duty code, and it was the mature timber which created the incidence of tax liability and then it was taxed at the full estate duty rate.
Does it apply only to the gift aspect and not to the inheritance aspect?
It applies to both.
On the Report Stage of this Bill in the other House I gave an example of the operation of subsection (3) of this section, citing a case where A settled property on himself for life, with the remainder to B and subsequently surrendered his life interest to B. In such a case A has made a second gift to B. The purpose of subsection (3) is to exempt this second gift from tax, so that tax would be payable only on the benefit taken by B under the first disposition. Deputy John Esmonde then asked if there was a different situation, where X settles property on A for life with the remainder to B and I replied that it would be the same.
In the speed of the exchanges I gave a wrong answer. The position in the case made by Deputy Esmonde if A released his life interest to B he, A, having received his life interest from X, would mean that tax would be payable (1) on B's acquisition of the capital under the original disposition of X and (2) also on B's acquisition of A's life interest under A's disposition, the reason being that there is a different donor. Subsection (3) does not exempt the second gift which arises in the case postulated by Deputy Esmonde. I have written to Deputy Esmonde clarifying the position, but for the public record I thought it desirable to take the opportunity of putting the position correctly in this House.
A lot of recent legislalation that has gone through this House has been vulnerable in terms of its constitutionality, and that is a question that will be tested in the courts soon. I am thinking of legislation regarding security, on the one hand, and on the other of social welfare legislation with regard to wealth tax. In this Bill a number of almost magical dates keep recurring such as, 28th February, 1969, April, 1975, and various others in sections of the Bill. It seems to me, as a lay observer of the Bill, that it is just possible that several of these involve some kind of retrospective legislation and perhaps retrospective penalisation of people who have evaded or avoided tax in the past. These magical dates raise a doubt in my mind as to whether this Bill has at every stage been tested against the Constitution in terms of retrospective legislating. I should like to ask the Minister if, in fact, at every stage where dates such as these in the past are invoked if he did consider the specific issue of contitutionality?
The Senator may be assured that we have had regard to our constitutional obligations and we have taken care as best we can, subject to the possibility of human error, to ensure that there is no breach of constitutionality. I am quite satisfied that there is none in this case, that there is no element of retrospective tax. All that this date does is to say that any gifts since this date will be taken into account for the purpose of determining the total value of gifts received by any particular donee from a particular donor because that is what creates the liability to tax. But there will be no taxation on any gifts made before the publication of the White Paper. It is only to determine the rate of tax and to determine whether or not the thresholds of exemption have been passed that they look back for five years before the publication of the White Paper to see what property may have passed. This in fact, is in accordance with the treatment operating under the old estate duty code where any gift of property within five years of death was taken into account and in fact was treated as part and parcel of the estate. So, we are having regard to the old estate duty principles and have not gone back any further than the law obliges us to go back for the purpose of determining the appropriate property of the deceased and the appropriate rate of duty.
I am sure that there were other representations about the Bill indicating the upper limits free of tax and various transfers, father to son and so on. There is just one or two anomalies that I would like to refer to. Again I do not expect the Minister to do anything and I am sure that he does not wish to do anything himself at this juncture but he might have a look at them. For instance, an obvious one is the transfer from father to son. The limit is £150,000 but a son to a father—it might be unusual but it could happen—is £15,000. It could happen that the father might have died in the interim and that the grandfather might wish to leave his possessions to a grandson with no father in between. Then it drops from £150,000 to £15,000. There are bound to be anomalies in a Bill of this kind but I think, with experience of the Bill, I would like to have an assurance from the Minister that he would look into some of these limits. Certainly, the father to son limit is very generous and very acceptable generally, but the drop in the other ones is tremendous in some cases and I think there are certain anomalies, certainly in the cases that I have mentioned. I would ask the Minister if he would have a look at this again. I presume that they can be adjusted from time to time as the situation might warrant it.
I think Senator Russell is anticipating what my disposition would be. Clearly, we have to have different categories and it is very difficult indeed to draw the line in such a way as would be proper in every possible family situation and having regard to the different problems that arise and the different prob-spans as given to man. But we will carefully monitor this situation and if we feel that modifications are necessary we would certainly be quite open to consider the need for making those adjustments. We need, in relation to all these capital taxation measures, some experience before we pass judgment as to whether or not we have done absolutely the correct thing. I would be surprised indeed if in the light of experience we did not need to make some amendments. I would certainly not be opposed to them, if circumstances justified it.
Before the House passes that resolution let me avail of this opportunity on what I am sure is your behalf as well as my own to express our appreciation to the Revenue Commissioners and the officers of my Department for the magnificent work they did on a very complex measure and indeed on related measures. Whatever views people may have about the legislation in question I am sure we are all at one in admiring the tremendous work that has been done in this area. In a comparatively short period of three years we have radically overhauled the whole system of capital taxation and we are, in this area, the first common law country to make such changes. This pioneering work has had to be done, unlike most taxation measures in this country, on the blind, as it were. There were no precedents from countries with similar legal systems to go by. I think very sound judgments have been made. I am not saying that with any sense of superiority because, as I said in relation to what Senator Russell said I anticipate there will be a need to refine it and adjust it in the light of experience. However, a major piece of work has been done by people who have not spared themselves in doing it. We all, through the White Papers, the Bills, the explanatory notes and the memoranda that have been furnished in relation to them, know a great deal more about a very complex area. I can only hope now that those who have worked so hard in preparing this legislation will have satisfaction in working it, and that those who have been critics of it will find that a great deal of their criticism has not been justified. If they feel that it has been justified and are able to prove it they may be assured of my readiness to make such adjustments as circumstances may require.
Again, I would like to thank the Seanad for the manner in which they assisted me in the passing of this Bill and other related Bills.
I would like to agree on this occasion with the Minister's remarks. There is no doubt that the officials of his Department have put in an immense labour. We on this side of the House might well wonder whether they would not have been better employed at something else, but leaving that out of account, there is no doubt about it that they fulfilled the task given to them with the greatest degree of expertise and they are to be congratulated on all they have done.
