This section is concerned with the definition of a "close company". Broadly speaking, a close company is a company which is under the control of five or fewer participators or of its participators who are directors, however many such directors there may be. A non-resident company, an industrial and provident society, most building societies, a company controlled by the State and a company controlled by a non-close company will not be regarded as a close company.
SECTION 94.
Question proposed: "That section 94 stand part of the Bill."
This is something new?
The existing section in the Income Tax Act is 530. Part X of this Bill is more extensive. It clears up some areas of uncertainty.
This is an attack on accumulated profits, non-distributed profits?
Yes. Both the 1972 and the 1974 White Papers recommended that section 530 should be strengthened.
I take it that this is directed at tax avoidance.
Yes. We have not received any representations on it.
Does this relate to profits accumulated and not invested?
That is a way in which a close company has been used in the past.
The Minister is including in section 94 registered industrial and provident societies and building societies but not agricultural societies.
An agricultural society is not separately mentioned but an industrial and provident society could be an agricultural society.
Yes, but there is a provision somewhere. At one time certain concessions to industrial and provident societies were withdrawn because the industrial and provident societies were being used by builders as a way of escape and the concessions were withdrawn. At the time the concessions were withdrawn exemption in respect of withdrawal was made in the case of agricultural societies, if the societies were engaged in agriculture and had so many members.
They would be excluded if they had the numbers to make up a close company—five or fewer participators.
I am not sure where this takes us. Section 220 of the Income Tax Act, 1967, defines an agricultural society for the purposes of that Act.
That is how it came in.
It says that an agricultural society means a society in relation to which the following conditions are satisfied: that the number of the society's members is not less than 50; that all or a majority of the society's members are persons who are mainly engaged in and derive the principal part of their income from husbandry and that it is a society to which a certificate under subsection (2) (a) has been issued. That incorporates section 70 of the 1963 Act which provides for disregarding the profits or losses applicable to certain transactions.
It was to identify a bona fide agricultural co-operative society and to leave it untouched by the withdrawal of concessions at that time?
Yes.
Where do they stand now?
These agricultural societies are relieved under the industrial and provident societies part of the Bill.
So they are still regarded as industrial or provident societies and they do not have to be specified as agricultural and so these close companies provisions will not apply to them?
That is right.
No. Their members would exclude them.
An agriculture society must be a society registered under the Industrial and Provident Societies Acts, 1893 to 1936.
Question put and agreed to.