Recommittal is necessary in respect of amendment No. 15.
Finance Bill, 1965: Report Stage (Resumed).
That is what I suggested earlier but the Minister did not agree with me.
It introduces a new matter the substance of which did not arise on the Committee proceedings.
Bill recommitted in respect of amendment No. 15.
I move amendment No. 15:—
In page 20, between lines 26 and 27, to insert a new section as follows:
"In relation to a policy of assurance to which subsection (1) of section 11 of the Customs and Inland Revenue Act, 1889, applies and which was indefeasibly vested in a donee before the commencement of the period (in this section referred to as the relevant period) of five years ending at the death of the assured, the following provisions shall have effect if the assured dies after the passing of this Act and has paid any premiums on the policy during the relevant period:
(a) a part of the money received under the policy shall be excluded from the property passing or deemed to pass on the death of the assured and that part shall consist of:
(i) so much of that money as is equal to the price which, in the opinion of the Revenue Commissioners, the policy would have fetched if sold in the open market on the commencement of the relevant period, and
(ii) if any of the premiums paid on the policy during the relevant period were premiums not paid by the assured, so much of the balance of that money as bears to the whole of that balance the same proportion as the total of those premiums bears to the total of all the premiums paid on the policy during the relevant period;
(b) such part of the money received under the policy as remains after the exclusion under the foregoing paragraph shall be treated for all purposes of estate duty as made up of or including the gifts deemed under the next paragraph to have been made by the assured to the donee,
(c) the assured shall be deemed to have made, on each date during the relevant period on which he paid a premium on the policy, a gift to the donee of so much of the part referred to in the foregoing paragraph of the money received under the policy as bears to the whole of that part the same proportion as the premium bears to the total of all the premiums paid by the assured on the policy during the relevant period."
I should like to ask leave of the House to amend the amendment by omitting the last two lines on page 4 of the amendment, that is, the words "and has paid any premiums on the policy during the relevant period". The omission of those words will ensure that the relief I propose to give will be wider than it would have been if the words were included.
Is the amendment, as amended, agreed to?
We should like to hear why it is wider. We can discuss it all together?
Yes. I thought it was necessary at this stage to get leave of the House.
We certainly give the Minister leave to introduce the amendment to his own amendment, further evidence that the Bill was not adequately considered in the first case.
The purpose of the amendment is to give relief to benefits arising on insurance policies maturing on death. The manner in which it is proposed to do it is to treat as part of the proceeds proportionate to each of the premiums paid on insurance policies as a form of gift and to treat the last five years as a period in which the gifts inter vivos provisions would operate, but only to assess the last five years' value of the insurance policy for death duty purposes.
To give a simple case would be the best way to explain it to the House. A policy is worth, say, £1,000 on maturing on the death of the person who pays the premiums. If, say, £600 was the value of the policy based on the premiums paid up to the commencement of the period of five years before the death, £400 would then be the value of that £1,000 policy for the five years up to the date of death. I propose to charge only the £400 value but to give relief on the lines of the relieving provision for gifts inter vivos. In other words, 15 per cent of the value in the third year, 30 per cent in the fourth year and 60 per cent in the fifth year.
I have a statement I should like to read in connection with this because there are certain things I should like to have on the record. If the House will bear with me, I propose to read this statement.
Certainly. It is a most complicated transaction.
Even for the Deputy?
When I see it in print, it may be understandable.
This statement will, of course, be slightly wider but, if I am out of order, I am sure the Chair will intervene. The purpose of section 25 of the Bill is, as the explanatory memorandum stated, a perfectly general one. It was not simply to apply aggregation to policies effected under the Married Women's Status Act. It was to remove from the scope of the proviso to section 4 of the Finance Act, 1894, all property of every kind which passes on a death and was derived from the deceased.
The proviso, which excluded from aggregation property in which the deceased "never had an interest" was introduced into the Act of 1894 to prevent an extra burden of estate duty being thrown on a man's estate by the aggregation of property to which he had always been a complete stranger but which would, technically, pass on his death by reason of a settlement by some person who may have been a complete stranger to him.
Such a case would arise where A settled property upon trust that the trustees should pay the income to B during the life of C and on C's death should transfer the property to D. On C's death, the property would pass within the meaning of the Finance Act, 1894; and, but for the proviso, it would be aggregable with C's own estate and could cause a higher rate of duty to be payable on that estate than otherwise would be applicable— although C would never have had an interest in the property. Section 25 of the Bill preserves the proviso in a case of this sort.
That is an estate par autre vie.
That is it, yes.
Is that not so?
Yes. That is the one I was explaining a while ago.
It is the same case.
The proviso has, however, come to be regarded as applying to certain classes of property which have been derived from the deceased himself and which pass by reason of some act, disposition, or payment done or made by him. In connection with some of these categories the proviso has been used as an avoidance device.
Property in the following categories is at present treated as "property in which the deceased never had an interest" within the meaning of the proviso and accordingly as an estate by itself not aggregable with other property. Section 25 of the Bill will make them fully aggregable.
(a) Death benefits payable under superannuation schemes and which are enforceable in law. (When these do not exceed £5,000 and go to the widow and dependent children they will be entirely exempt from duty and, therefore, from aggregation with any other property passing on the death.)
(b) Policies effected under the Married Women's Status Act and which are indefeasibly vested before the death of the assured. (A policy which was only contingently vested —as where it was effected for the benefit of the assured's wife if she should survive him—was never treated as "property in which the deceased never had an interest" and was always fully aggregable.) In relation to a Married Women's Status Act policy which is treated as "property in which the deceased never had an interest" the proviso works as follows. Assume that the property passing on the death consists of such a policy for £50,000 and free estate of £60,000. If the proviso did not apply, as it will not under the proposed legislation, the estate duty payable would be £44,000 (40 per cent on £110,000). By the operation of the proviso, the duty is £31,500—£50,000 at 27 per cent plus £60,000 at 30 per cent.
(c) Any other form of property which can be made to vest in a donee the moment it comes into existence.
A typical example of this is an annuity bond. This is at present being used for avoidance on a substantial scale. A man contracts with an insurance company or a broker for the purchase of annuity bonds to be issued to a donee. These consist of bonds for payment to the donee of either immediate or deferred annuities for a fixed number of years. The bonds contracted for have no existence prior to the contract and from the moment of the contract belong to the donee. The bonds have, of course, an immediate surrender value and the donee can surrender them for cash to the insurance company.
If the purchaser dies within three years—a period which the Bill increases to five—of the purchase, there is a dutiable gift inter vivos: the property liable to duty is the property taken by the bonds. These are “property in which the deceased never had an interest” and are not aggregable. Moreover, since they are not policies they are not caught by section 12 of the Finance Act, 1955, which makes aggregable inter se all non-aggregable policies passing on a death. Consequently each bond has to be treated as an estate by itself.
In an actual case a man, six months before his death, paid an insurance company £180,000 for 15 such bonds to be issued to trustees on behalf of nine donees for whom absolute indefeasible trusts were declared. Each donee became entitled to three bonds. The loss of duty involved in treating each bond as an estate by itself is over £60,000.
The proposed new section under which the value, for duty purposes, of a policy indefeasibly vested in a donee will be abated, will give substantial relief in relation to Married Women's Status Act policies. Although it is not confined to such policies, it will apply to all insurance policies that are donated. It will operate as follows: If the policy is indefeasibly vested in the donee five years or more prior to the death of the assured, a sum equivalent to the value of the policy five years before the death will be treated as exempt and will, for estate duty purposes, be deducted from the proceeds. The balance of the proceeds will be treated as attributable proportionately to the premiums paid within the five year period; each proportionate part will be treated as a gift inter vivos made when the premium was paid; and, as in the case of other gifts inter vivos, the gift made in the fifth year before death will be abated by 60 per cent, that made in the fourth year by 30 per cent and that made in the third year by 15 per cent.
If the policy is, say, one for £5,000 and has a surrender value of £3,000 five years before the death of the assured, £3,000 of the proceeds will be treated as exempt. The remaining £2,000 will, if five premiums are paid in the five year period, be treated as comprising five separate gifts of £400 each. For duty purposes, the notional gift of the fifth year will be abated to £160, that of the fourth year to £280 and that of the third year to £340. Accordingly, instead of £5,000 being liable to estate duty as at present, only £1,580 will be charged on.
That is possibly a more lucid explanation of what I said extempore at the outset on the section. I might now, perhaps, revert to the reason for my request for asking leave to amend the words to which I referred.
The amendment.
The amendment to the amendment widens the relief because when the deleted words—these are the words "and has paid any premiums on the policy during the relevant period"—were in, the section would operate only when the deceased had paid any premiums during the last five years. If he had not, for instance, if the policy became fully paid up outside the five year period, the section and therefore the relief would not operate. That is why I said the omission of these words would give that wider relief which the section proposes to give.
I accept the Minister's statement about the amendment to his amendment and about the deletion of the words at the end of page 4. I think that deletion is a good one. I am concerned, however, about the one anti-social effect there is in this proposal and it was because of that I put down amendment No. 13 but, inadvertently, I put it down to the section instead of putting it down as a proviso at the end of the Minister's amendment. However, I can discuss it just as well now.
As I understand this position—and I shall take the example that the Minister has taken in the end—if a man takes out a policy for £5,000, shall we say, when he is aged 25, marries when he is 26, lives for five years until he is 31 and then, if he dies at 31, we are going back to the surrender value of that policy when he was aged 26, that is, one year after he had taken out the policy. The surrender value in that case would be virtually negligible. The surrender value would probably be about £250 and the whole value of the policy, less the surrender value, would be £4,750 which would be liable for duty. That is the case of a man married four or five years. Obviously, he has a young family and his widow is in a position of really needing funds to carry on, look after the family, maintain and educate them and it is one of the most needy cases you could have. As I understand the Minister's amendment, in that case £4,750 of the policy would be liable for duty.
In the other case I am going to suggest where again, say, a man took out a policy at 25 but lived for 30 years until he was 55, presumably then this family would be grown up and settled and there would not be the same necessity to provide for their maintenance, education and benefit as there would be in a young family. But in that case you go back to the surrender value of the policy as it was at the age of 50 and it is most likely that the value would have been about £4,000 on the figure in question. Deducting that £4,000, only £1,000 of the policy becomes liable to duty. It seems to me therefore that the Minister's proposal is anti-social because the young family that needs the money would be taxed more heavily than the family that is grown up and settled in life. That is a bad method of dealing with the situation.
I shall go further and be constructive in relation to this. The situation could be met to cover a social effect of this kind by providing that it was the surrender value of the policy or the residual value, whichever is the lesser, that would be liable for duty. If that were done, the case of the young family would be adequately covered. Would the Minister not agree that the effect is as I say?
Generally, I agree with the Deputy.
Would the amendment I suggest not be a fairer way of meeting the case?
Unfortunately, I did not listen closely enough to the final part of the Deputy's statement.
Unfortunately, I am speaking extempore; otherwise, I should reciprocate the Minister's courtesy in sending me a copy of his memorandum. In the case I mentioned where the young husband dies at 31, it is obvious that the need is much greater and that the amount of the surrender value would be only about £250 and the duty would be payable on a value of £4,750. In the other case, the surrender value would be about £4,000 and the family is grown up and the need not so great and the duty would be on only about £1,000, the residual value. The Minister could meet the case fairly by adopting my proposal. I go so far as to say that with the exception of the anti-social effect I mention, his amendment does meet a great deal of difficulty that arises but he could meet it completely by providing that the amount on which duty is payable should be either the surrender value five years before or the amount of the residual value, remaining after deducting the surrender value, whichever is the lesser. If he did that, it would help the situation immeasurably.
I do not know if the Minister saw— I saw—a suggestion in, I think, the Young Farmers' Journal that death duties should be scaled by reference to the age at which we “shuffle off this mortal coil.” There is much to be said for that because it is in the case of people dying young that real hardship arises. When people have gone on to a certain age, they have had some chance of making some provision for their dependants even with death duty: where they die young, the expense of the family is immense since a young, growing family has to be educated and there has not been enough time in life to make some provision. Frankly, it was that suggestion which I saw in a letter in the Young Farmers' Journal that made me frame an amendment to the Minister's amendment. I feel that an amendment on the lines I suggest would be fair and reasonable and meet the case of the young family. If the Minister were disposed to accept it, I can give him an assurance from these benches that we would be prepared to adjourn consideration of this section until tomorrow and give it to him tomorrow without any discussion, if he would produce the section to meet that particular case.
I am bringing in the amendments in section 28 to deal with the widow and young children, that is, increasing the amount of the abatement. The amount of the estate that a young person of the type to whom Deputy Sweetman referred, would have to have would be £12,500 or more before there would be a liability for duty. Under the amendment as it stands, the proposed section on its face provides that £4,750 which Deputy Sweetman assumes would be the value of the policy for the five years before death would be subject to fairly considerable abatement. Assuming its value for the five years, as in the example I gave, to be £1,000 for each year, that would be £600 abatement in one year added to £300 for the next year and £150 for the next year.
I think the Minister is referring to amendment No. 21 and the cognate amendments.
That is right.
The Minister must realise that where a man dies at the age of 31, having been married for only five years, his children are so young that it is not a feasible proposition for him to leave his estate split between his widow and children. The Minister will agree, I am certain, that the proper will for such a person is one giving everything to the widow but if he does, she will get only the £250 allowance and not the children's benefit.
If the estate goes to her, she gets the dependent children's allowances as well.
If they get a benefit. Surely this was the discussion we had on subsection (5) of section 28? Surely this is the difference between the legacy of a fixed sum of two-fifteenths and the nine-fifteenths which we discussed on the last occasion.
It is specific in subsection (2) of section 28 which provides that where the widow is the only dependant entitled to benefit on the death of the deceased, any estate duty payable in respect of such benefit shall be abated by the sum of £150, now amended to £250, together with the sum of £100, now amended to £150, in respect of each child.
But if there is a "tenner" given to a godchild, she loses that. Is that not the situation?
The Deputy just mentioned that the obvious devolution of property like that would be to give all to the widow.
I think it would be a good thing but it seems to me that it is subject to technicalities.
I am told that it is the sort of technicality that would not disentitle the widow to her relief under subsection (2).
Do I understand the Minister to say that administratively, if there is a single benefit to someone like a godchild, of a reasonable sum, and that is the only other benefit given, apart from the estate being given to the widow and children, the provisions of subsection (2) of section 28 will become operative?
I should not like to say "yes" offhand to that, and if the Deputy——
The Minister was trying to say "yes" offhand before.
It might be a little too wide but in the case of the widow, it would hardly be the kind of technicality that would deprive her of this benefit.
I am certain it will be used for deprivation, unless we get a categorical assurance from the Minister. We will take any assurance as being categorical and endeavour to give it the widest possible dissemination.
Amendment, as altered, agreed to.
Amendment reported and agreed to.
I move amendment No. 16:
In page 21, to delete lines 20 to 24 and substitute the following:—
"( ) This section shall have effect only in cases in which the relevant disposition, surrender, assurance, divesting, determination, or other transaction was made or effected after the 11th day of May 1965."
This amendment is in similar terms to an amendment moved on Committee Stage objecting to the retrospective provisions. We expressed the view then that these provisions should apply only from the date of the introduction of the Budget, 11th May. The Bill as drafted means that it will apply retrospectively for a period of three years before the passing of the Bill. A great many people accepted professional advice on the understanding that the law would apply as then in operation and it is our view that the law should not be amended retrospectively in matters of this sort. Although the Minister did quote an extract from a work on taxation, nevertheless it is a general view that it is undesirable to enact legislation dealing with matters of this sort having a retrospective effect. The purpose of this amendment is to ensure that the section will take effect only in cases in which a disposition or other legal instrument was made or effected after 11th May, 1965, the date of the introduction of the Budget.
I said during the debate on Committee Stage that if this amendment were accepted, it would introduce new principles in estate duty legislation. I repeat that it has been the principle of most legislation that it should apply as of the date of death. There is the proviso that it does not go beyond three years—that any disposition made three years or more before the passing of the Act will not be caught. Once the death occurs after the passing of the Act, it is the principle of estate duty legislation that all transactions are caught. It is consistent with all previous estate duty legislation, consistent not only with the authoritative quotations on tax law I gave on the previous occasion but also with what Deputy Sweetman, as my predecessor, contended in regard to retrospection generally. It is consistent, pro rata, with previous legislation of this type—the extension from one to three years within which gifts made were subject to duty. Mainly on the ground that it would be a breach of the principle in estate duty legislation I regret I cannot accept the amendment.
The one precedent, in the 1909-10 Finance Act, section 59, allowed the Act to operate only from the previous year. With the exception of that limited period, there was only that retrospection.
One year was the period up to then.
The Minister is worsening that.
As far as I know the date in 1909 was 13th April. I think it was the date on which the Budget of that year was introduced. I believe there is an equally good case for making the same provision in this Bill so as to cover cases and to avoid retrospection.
The Minister will agree that when I made the remarks to which he refers, I was attempting to maintain the 1909 Finance Act position, which is what I have been endeavouring to do today.
I agree Deputy Sweetman's remarks then referred to estate duty as such.
We have departed from the precedent set in 1909.
I am saying we are being completely consistent with it.
What was the date of the Budget that preceded the 1909 Act?
It was 30th April, 1909.
Does the proviso to section 59 not clear anybody who was out of it before the Budget?
No; the proviso refers to 30th April, 1908.
They were clear. We are not clearing people in the same way in respect of three years.
Three years or more.
We had this argument before.
Is this Committee Stage?
Hear, hear.
May I ask the Minister——
I can share Deputy Tully's concern about procedure. The Deputy is allowed to ask questions but this is the Report Stage of the Bill.
Is the Bill recommitted?
Acting Chairman
No.
In the last lines of the section, it says "between three years". That changes the position.
Is this not a straight amendment?
May I put it as a query in another way? If the Minister is keeping the same arrangement to prevent retrospection as was made in the 1909 Act, why does he not refer anywhere in the section to a proviso ending with the words that it will not affect a gift made before 11th day of May, 1962? That is what the other section did.
This relates to the date of the passing of the Act.
Within three years before the passing of the Act.
That is what it does in effect—any disposition three years or more before the passing of the Act will not be affected by the extension from three years to five years.
(South Tipperary): I was not here for the Committee Stage debate on this section. As I understand it, all those who made wills or dispositions three years before the passing of the Act are all right but the other people caught in the three-year period are not. They made their wills during this three year period expecting that when the three years had elapsed, they would be free of estate duty. Now they find that if they are to be free they will have to live another two years—take pep pills or something. That is unjust. None of us can make himself live two years longer to avoid a section in an Act.
If, for example, a person made certain family arrangements during this period, in the expectation that he would be free of death duty at the end of three years, and if, in the meantime, it became necessary, because he was now to be caught for estate duty, to re-arrange his affairs and if during that period the property owner became insane or got into some other condition in which he could not adequately dispose of his property, is he not suffering a serious disability by the extension of this period from three to five years?
Would the Minister say why the 1909 Act said "before the period" and this says "after or within"? They could not both be the same.
It has the same effect. If somebody made a disposition after 30th April, 1908, he was caught when the period was changed then from one to three years.
I should like to put the point that, regardless of the question of precedent, there is the question of justice involved in the idea of retrospection. I do not think the Minister or Government should feel obliged, because something was done before in a particular way in a Finance Bill, to continue to do so down through the years invariably. I do not know whether the Minister has conceded this as retrospective legislation or not. Certainly, whether the Minister has conceded it or not, it is generally regarded, and accepted, as legislation having a retrospective effect in that it may have the result of upsetting arrangements which were perfectly valid and perfectly lawful at the time they were made. These arrangements were made on the best professional advice at the time. The Minister is introducing a section in the Finance Bill which will render those intentions at least partly inoperative by the extension of the period from three to five years. I would agree that the Minister is quite entitled to fix any period he likes for arrangements entered into, provided the Minister has made his announcement in this House.
A question of justice is involved when it comes to interfering with arrangements already made and which at the time they were made had the cloak and sanction of the legislation of this House, and the professional advice that was given to the makers of these arrangements. I would appeal to the Minister to break away from tradition. Surely this is a case, if any, where the Minister has an opportunity of doing some fresh, dynamic thing on the question of estate duty generally. Surely this is a time when the Minister and the Government should feel that more is called for from them than merely following in the ordinary pattern because it was done in the 1908, 1909, 1910, or 1918 Act. I would suggest that the Minister take his courage in his hands and look at it in that light.
Or the 1955 Act.
Yes, keep to that provision and I will be quite happy.
Perhaps Deputy M. J. O'Higgins was not here when I read a quotation from "Taxation". I shall give the quotation again:
We are sure that most professional advisers have explained to their clients that transactions of this nature are always liable to be upset by future legislation and, therefore, the taxpayer appreciates that there is some risk that his acts will be made of no effect. He will usually accept this risk because he is no worse off if he dies within the five-year period and will be much better off as a result of having made the gifts should he outlive the five years.
I notice the Minister verbally underlines "Some risk".
Is it a sliding scale the same as in Britain?
We have a specific amendment to that effect.
Is it in exactly the same terms?
Yes.
Question put: "That the words proposed to be deleted stand".
The Dáil divided: Tá, 65; Níl, 57.
Tá
- Aiken, Frank.
- Allen, Lorcan.
- Andrews, David.
- Blaney, Neil T.
- Boland, Kevin.
- Booth, Lionel.
- Boylan, Terence.
- Brady, Philip.
- Brennan, Joseph.
- Brennan, Paudge.
- Briscoe, Ben.
- Burke, Patrick J.
- Calleary, Phelim A.
- Carter, Frank.
- Carty, Michael.
- Clohessy, Patrick.
- Flanagan, Seán.
- Foley, Desmond.
- Gallagher, James.
- Geoghegan, John.
- Gibbons, James M.
- Gilbride, Eugene.
- Gogan, Richard P.
- Healy, Augustine A.
- Hillery, Patrick J.
- Hilliard, Michael.
- Kenneally, William.
- Kennedy, James J.
- Kitt, Michael F.
- Lalor, Patrick J.
- Lemass, Noel T.
- Lemass, Seán.
- Lenihan, Brian.
- Colley, George.
- Collins, James J.
- Corry, Martin J.
- Cotter, Edward.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Crowley, Honor M.
- Cunningham, Liam.
- de Valera, Vivion.
- Egan, Nicholas.
- Fahey, John.
- Fanning, John.
- Faulkner, Pádraig.
- Fitzpatrick, Thomas J. (Dublin South-Central).
- Lenihan, Patrick.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- Meaney, Tom.
- Millar, Anthony G.
- Molloy, Robert.
- Mooney, Patrick.
- Moore, Seán.
- Moran, Michael.
- Nolan, Thomas.
- Ó Briain, Donnchadh.
- Ó Ceallaigh, Seán.
- O'Connor, Timothy.
- O'Malley, Donogh.
- Smith, Patrick.
- Wyse, Pearse.
Níl
- Barry, Richard.
- Belton, Luke.
- Belton, Paddy.
- Burke, Joan T.
- Burton, Philip.
- Byrne, Henry.
- Casey, Seán.
- Clinton, Mark A.
- Cluskey, Frank.
- Connor, Patrick.
- Coogan, Fintan.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Crotty, Patrick J.
- Desmond, Eileen.
- Dillon, James M.
- Dockrell, Henry P.
- Dockrell, Maurice E.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Seán.
- Dunne, Thomas.
- Esmonde, Sir Anthony C.
- Farrelly, Denis.
- Fitzpatrick, Thomas J. (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Harte, Patrick D.
- Hogan, Patrick (South Tipperary).
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lindsay, Patrick J.
- Lynch, Thaddeus.
- Lyons, Michael D.
- McAuliffe, Patrick.
- McLaughlin, Joseph.
- Mullen, Michael.
- Murphy, William.
- Norton, Patrick.
- O'Connell, John F.
- O'Donnell, Patrick.
- O'Donnell, Tom.
- O'Hara, Thomas.
- O'Higgins, Michael J.
- O'Leary, Michael.
- Pattison, Séamus.
- Reynolds, Patrick J.
- Ryan, Richie.
- Sweetman, Gerard.
- Tierney, Patrick.
- Treacy, Seán.
- Tully, James.
Tellers:—Tá: Deputies Carty and Geoghegan; Níl: Deputies L'Estrange and T. Dunne.
Question declared carried.
Perhaps we could take amendment No. 18 with amendment No. 17.
I move amendment No. 17:
In page 21, line 44, to insert "or who was then receiving full time instruction at any university college, school or other educational establishment" after "years".
The purpose of this amendment, as is clearly set out, is that the benefit will extend to children who are over the age of 16 years and are receiving full time instruction in a recognised educational establishment. This fully covers the amendment in the name of Deputy O'Higgins.
This meets a point raised by us on Committee Stage and we appreciate the Minister's acceptance of it.
Amendment agreed to.
Amendment No. 18 not moved.
Amendment No. 19 was discussed with amendment No. 12.
Amendment No. 19 not moved.
Perhaps we might take amendments Nos. 20 to 25 inclusive.
I move amendment No. 20:
In page 21, line 52, to delete "£150" and substitute "£250".
This is in fulfilment of something I said I would do on Committee Stage. It raises the amount by which liability for duty will be abated from what I proposed originally: £150 in the case of the widow to £250, and £100 in the case of a dependent child to £150.
Amendment agreed to.
I move amendment No. 21:
In page 21, line 53, to delete "£100" and substitute "£150".
Amendment agreed to.
I move amendment No. 22:
In page 22, line 1, to delete "£150" and substitute "£250".
Amendment agreed to.
I move amendment No. 23:
In page 22, line 2, to delete "£100" and substitute "£150".
Amendment agreed to.
I move amendment No. 24:
In page 22, line 4, to delete "£100" and substitute "£150"
Amendment agreed to.
I move amendment No. 25:
In page 22, line 6, to delete "£100" and substitute "£150".
Amendment agreed to.
I move amendment No. 26:
In page 22, between lines 23 and 24, to insert a new subsection as follows:—
(7) For the purposes of this section, but not further nor otherwise, a legacy to a dependant shall be deemed to carry with it a liability to estate duty on such legacy.
This follows on an amendment I moved on Committee Stage when I showed the Minister, and he accepted, that in the case of a person with an estate of £15,000 and a widow and three children, if his will were drawn so that if he left to each of his three children £2,000 and the residue to the wife he would get only £150—now £250—whereas if he left his estate as to two-fifteenths to each child and nine-fifteenths to the wife, which is exactly the same thing, he would get the larger concession. I think it is wrong that a concession such as this should be dependent on such a technicality. The Minister was not prepared to accept this because he suggested that to do so might leave it open to abuse. I have suggested in this amendment that to provide that a legacy of the kind I indicated would be treated as carrying a liability for estate duty for the purposes of the section and, accordingly, the technicality would not operate to prevent the concession and would operate to prevent any possibility of avoidance.
This matter has been reconsidered on the redraft of Deputy Sweetman's amendment. Even yet I am not satisfied that what the amendment tries to achieve would not be relieving people who may not be entitled to relief in the spirit of the amendment. It would certainly provide an opening to give relief to non-dependants, for example, where a non-dependant was a residuary legatee. I want to say, as I said at the start, that if a will is drawn in such a fashion as at first sight to preclude the abatement provisions applying, it could easily be drawn in such a way, by specific reference to these bequests that are made to the children, as to ensure that all the abatements provided would be available.
I want to say also that I am conscious of the odd case that might arise where a solicitor having drawn a will may not advert to the reliefs that have been given in the section or to the circumstances in which reliefs may be obtained. But, in order to ensure that there is the widest possible knowledge amongst legal practitioners as to what the section purports to do, I suggest that the Incorporated Law Society might consult with the Revenue Commissioners, with a view to ensuring that solicitors will be fully informed as to the manner in which the abatement provisions can be fully availed of in drawing wills. The Revenue Commissioners are quite willing to discuss with the Incorporated Law Society means of bringing this to the attention of solicitors so that the beneficial effects of the section will be fully operative.
I appreciate that offer by the Minister but it does not take into account a will which has already been made before the passing of this Bill.
There are such things as codicils.
If the Minister were a practising solicitor, he would know how small a proportion of testators would ever change their minds, having once made a will. They like to think that is that; that unpleasant job is over. That is the way most people regard it. Obviously a lawyer would not regard it as such.
He would not mind changing it a dozen times.
He would not mind changing it even 13 times.
In view of the difficulty of ensuring that the benefits we hope to provide will be confined to the widow and children, I am sorry I cannot accept the amendment. The Revenue Commissioners are prepared to go a long way to ensure that the people will get the benefit of this.
If the Minister could accept it, we would come tomorrow with a redraft to suit his purposes.
I should like to say yes, but there are difficulties. What I propose will achieve what the Deputy wants.
I should hope it would, but one does not like ploughing holes in taxation statutes in that way. I would rather give the Minister an undertaking to keep my mouth shut tomorrow and let him bring in the amendment, though mind you, that is a very hard undertaking for me to give.
I did give the amendment sympathetic consideration but because of the difficulties I mention, the danger of people who are not dependants getting benefits by this amendment, I cannot accept it.
We can return to the fray next year perhaps and it will only be concessionary for this year, if the Minister has not the time he would like to examine it.
Amendment, by leave, withdrawn.
I move amendment No. 27:
In page 22, between lines 33 and 34, but in Part III, to insert a new section as follows:—
The duty upon an account of property or an interest ceasing on death to which sections 20 and 21 of this Act apply or the duty due upon an account of chattels real, may, at the option of the person delivering the account, be paid by eight equal yearly instalments or sixteen half-yearly instalments with interest at the rate of 4% per annum from the date at which the first instalment is due and such instalment shall be due at the expiration of one year from the death, and the interest on the unpaid portion of the duty shall be added to each instalment and paid accordingly; but the duty for the time being unpaid with such interest to the date of payment may be paid at any time, and in case the property is sold, shall be paid on completion of the sale.
I do not know whether this amendment is covered by an earlier one. The purpose of the amendment is to allow duty on property affected by sections 20 and 21 in respect of duty to be paid by instalments, to be paid either by eight equal yearly or 16 half-yearly instalments with interest at four per cent. If the property is sold, payment can be made on completion of the sale.
In effect, that way of paying death duty is confined to agricultural land. To extend it to chattels real would create many difficulties and I do not think there is any good reason why it should be extended to leasehold property. If we did extend it to that type of property, there would be demand for extending that method of payment to duty on other types of property. Unfortunately, I have to adopt the same attitude as I did on Committee Stage of the Bill in resisting the amendment.
Surely the Minister is strong enough to withstand pressure in spite of unjustified amendments.
I am very weak in fact in that respect.
Amendment, by leave, withdrawn.
Amendment No. 28 not moved.
I move amendment No. 29:
In page 32, line 12, to insert "(other than a contract with respect to which the Revenue Commissioners, or on appeal the Special Commissioners, are satisfied that the disponer had no knowledge of its existence and that he had no reason for thinking that it existed)" after "contract".
We are coming to the section dealing with the taxing of profits on land development. Section 41 (2) (b) refers to the disposal of an interest in land by a person to some other person associated with him, perhaps in conditions in which it is obvious that he proposes to derive benefit from the ultimate development of that land. The purpose of section 41 is to ensure that where persons dispose of land in one form or another and maintain an interest in the development of the land, for example, a person selling or leasing a portion of his land to people who have entered into a contract with a builder to build houses on the land and the houses having been built, leases will be granted reserving fines on the portion of the land on which these separate houses are built.
I want to assure the House that there is no intention in the section of making liable to income tax in such transactions persons who made genuine sales of their property. The purpose of this amendment is to make that doubly sure by, on its very face, stating that the disponer had no knowledge of the existence of a contract or had no reason for thinking that a contract existed. I think that, in this manner, I have gone the full way to meet the objections raised to the subsection as it stood and the genuine fears expressed by many of the Deputies opposite about the effect of the section as it stood.
I want to raise three points on this. First, is it clear that there is an appeal from the Special Commissioners to the Circuit Court?
Yes.
That is all to the good. Secondly, is it not unusual, to put it mildly, in a taxation statute to say that the taxpayer shall be judged guilty until he proves himself innocent, which is what this does? This says that the taxpayer shall be guilty and have to pay the tax unless he proves himself innocent. That seems to me, to put it mildly, a most unusual provision in our taxation code. I should be very interested indeed to hear from the Minister of any single other section in any part of our tax code which puts the same burden of proof on the taxpayer. Thirdly, I find it difficult to see how a person who has property and sells it to a firm of builders is not to be deemed to have reason to think that there is the intention to develop and the contract for development that is visualised in the section.
I admit at once that the amendment is some improvement on the section but I do not think it goes adequately far. It is desirable that there should be an appeal of the kind indicated. To that extent, it is good. However, it is all wrong that the burden of proof should be put upon a taxpayer so that he will be liable to pay tax unless he disproves that he is liable.
I wonder if the Minister ever heard a story about what happened a certain very nosey inspector of taxes at the time when the Harcourt Street Railway was in operation and there were, many years ago, railway carriages which had a partition only about two-thirds of the way up so that one could hear clearly everything that was being said in the next-door carriage, though one could not necessarily see who was saying it. This inspector made a practice of raising assessments and leaving the taxpayer at the expense of fighting assessment, whether or not it was justified. Accordingly, two people decided they would teach him a lesson. They got into one of those carriages after he had got into the adjacent one, and they carried out a loud conversation all about how a certain person had been getting away with murder in relation to his tax appeals over mentioned specific things. It is about 35 years since I first heard the story so that nobody who was present there can in any way be taken to task.
It so happened that the inspector went off chortling to his office the next morning and issued an assessment straight away against the man who had been talking so loudly. The taxpayer decided he would make it an even better lesson. He appealed against the assessment and, when it went to the Special Commissioners, did not make any substantial argument but appealed to the Circuit Court judge and told him the entire story. That inspector left with a very red face. He did not go around the golf club in the same way afterwards trying to pry into people's affairs. I am sure that would not be done in present times but the effect of this section is roughly the same, that the taxpayer has to prove that the story that was told was not true.
I do not like the amendment on that account, though I do agree that it gives slightly more chance to the taxpayer than the original section. It seems to me that the section needs to be dealt with more radically by way of an amendment to ensure that the sale by a person—where it is an out and out sale—is not caught and that there is nothing of the element of the capital gains tax in the transaction. I take it that what the Minister intended a second ago was to say that there is no capital gains tax element in this. On the last occasion, when he spoke about the values of land increasing, he rather gave some impression that he had a capital gains tax in his mind.
I was replying to a point by Deputy Crowley. I heard afterwards that I misconstrued what Deputy Crowley had said.
I accept the Minister's withdrawal of that particular remark on that occasion, but, as he said it, it certainly implied it and shook many people very much in the interpretation of the section. The amendment is an improvement except for the precedent it creates in that respect. Being a Report Stage, we cannot do very much more about it but something on the lines of amendment No. 40 seems to me more desirable for the section as a whole.
Am I entitled to say another word?
I want to assure Deputy Sweetman that there is no question of finding the potential taxpayer guilty in advance. If the taxpayer asserts he has no knowledge of the transaction, then I suggest the onus of proof is thrown on to the Revenue Commissioners. As Deputy Sweetman has indicated, the matter is subject to appeal to the Circuit Court in the ordinary way. I want to assure the House that the type of case that is being set out here is that of the man who lets a builder in on his land and makes no disposition at that stage. The builder makes an arrangement with his clients and gives a number of plots to those clients to erect houses on them and the landowner then gives leases and imposes fines and all kinds of payments. Therefore, he is in with the builder on this type of development. The man who makes a sale without any knowledge of the contract——
If you sell to a builder, have you not got knowledge per se?
No. So long as a contract has not been effected before——
Is the word "arrangement" not used somewhere?
"A disposition made in pursuance of any arrangement ——"
If "arrangement" were not there, I would be quite happy with the Minister's comments. It is "arrangement" that frightens me.
The type of arrangement involved there is the one I was referring to, where a builder comes in, builds a house, gets the landowner to make out a lease at a lesser interest than he has himself and makes a substantial profit.
What is the position of a farmer who constructs a cottage for a workman or reconstructs a cottage or portion of an outbuilding and makes it into a dwellinghouse for an employee? Is he caught by this section as at present drafted? In that case the property on the land would be part of his farm. Surely it is not intended to catch a case like that?
No, and he is specifically excluded in subsection (3) (b) (ii).
It must be for his exclusive occupation?
It is for the purpose of farming, if he builds a place for his workman.
It must be for his exclusive occupation? In this case it would be for a workman?
If it is erected in connection with his farming business, it would be excluded, even if it is occupied by a worker.
The worker would be employed on the farm. Would he be liable in that case?
No.
Amendment agreed to.
I move amendment No 30:
In page 32, between lines 28 and 29, to insert a new subsection as follows:—
"( ) Notwithstanding the provisions of subsection (2) a business of dealing in or developing land shall not be deemed to be carried on where the person so disposing of the same had been in occupation thereof for the whole of the three years prior to such disposal as his only or main residence."
The object of this amendment is again to safeguard the position where a person has not, and could not be said to have, bought for the purpose of development and had in fact sold or agreed to sell a house which genuinely was his own residence, getting as a result an accretion in value. It is to ensure that there should not then be an imposition of tax on that. The test I suggest in the amendment is a three year test prior to the disposal.
If that is the purpose of the Deputy's amendment, it is not necessary. Under subsection (3) (b) (ii), a person who has a house like that constructed for him, if he occupies that house for substantially the whole of the period from the time it was built until its disposal, no matter how short that period is, will not be caught by the tax provision here. The amendment as drafted would cover one type of the cases the section as a whole wants to catch. It has been known that people in the building business build a house, occupy it, live in it for a while and then pass on, having built another house and occupied that, selling the houses as they go along. It is possible that such a person could occupy a house built by him in that way for the period of three years, dispose of it, build another house and dispose of that in the same way. I suggest that in any event the exclusion provided for in subsection (3) (b) (ii) is sufficient to cover the type of case the Deputy has in mind.
Would the Minister not consider that anybody who builds a house, even though he may be in it for only a short time, is an asset to the State? Our difficulty at present is that we are very short of houses. It seems to me that legislation we are embarking upon now would prevent people from building houses and prevent people from giving land for that purpose.
The Deputy is drawing a very long bow.
Is it not a fact we are very short of houses of every type and condition at present? Anything that prevents people building houses seems to me to be very shortsighted. Would the Minister not consider it from that angle?
Surely, if a person in the building trade operates in that way, the State is entitled to tax his income?
It is very hard to say who is actually in the building trade.
If a farmer buys a farm, occupies it for ten or 20 years and sells it outright at a profit, is he caught by this?
No.
If he builds and enters into a contract, is he allowed the value of the property, plus the cost of development against whatever he makes?
He is.
(South Tipperary): For example, a teacher or civic guard buys a house and, by the nature of his occupation can only remain two years in an area before being transferred. He goes into a house, finds it too small for his family, builds an annexe or carries out some other improvement. Will such a person be penalised because he has not remained for three years?
No.
This section applies only to official builders?
To a person who operates in that way.
I am afraid that is not so. The section does apply to more than that. I accept that the Minister, when drafting it, was inclined to feel that it should only apply in the way he says but I am afraid it is wider.
It has caused considerable disquiet.
It has everybody up in a heap.
I think the sum total of the amendments will make it perfectly clear what type of case is in and what type of case is out.
Amendment, by leave, withdrawn.
I move amendment No. 31:
In page 32, lines 30 and 31, to delete "constructed or reconstructed" and substitute "developed".
Perhaps amendment No. 32 could be discussed with amendment No. 31.
Yes.
The purpose of amendment No. 31 is to substitute the word "developed" for the words "constructed or reconstructed". There is considerable concern about the actual meaning of the phrase "constructed or reconstructed" and it has been suggested to me that the word "developed" would be more appropriate and should be inserted. The impression is that there is ambiguity about the definition of the two words as phrased, that a person might do a particular work without necessarily constructing or reconstructing, and that if certain preparatory work were carried out, while not involving construction or reconstruction of property, the work undertaken would be in pursuance of the ultimate objective of developing the property. It is suggested that the word "developed" is more appropriate.
I suggest that the words I use in amendment No. 32 are more appropriate than "developed". I propose in amendment No. 32 to delete the words "or caused to be constructed or reconstructed", as being unnecessary, and to substitute the words "reconstructed, extended or altered", which I think are all-embracing and certainly will cover the word "developed" in this context.
I think that is an improvement. The Minister's amendment was put down after mine. I withdraw my amendment.
Amendment, by leave, withdrawn.
I move amendment No. 32:
In page 32, lines 30 and 31, to delete "or reconstructed, or caused to be constructed or reconstructed" and substitute ", reconstructed, extended or altered".
Amendment agreed to.
I move amendment No. 33:
In page 32, line 41, to insert "in a case in which the building was constructed or reconstructed," before "the period".
This amendment is consequential on amendment No. 32.
Amendment agreed to.
I move amendment No. 34:
In page 32, line 43, to delete "six" and to substitute "three".
The purpose of this amendment is to reduce the period from six years to three years. Six years is a considerable time and three years seems reasonable. It is in line with other provisions that were in the Bill.
That is why I suggest six years is reasonable in the circumstances.
Could the Minister defend six? Why six?
It will be five in other parts of the Bill.
Is it just a case of thinking of a number?
It is more than that.
Why six?
There is nothing sacrosanct about six.
Then will you accept three?
I think six is fair.
Then it is sacrosanct.
I think it is fair.
Why is it fair?
I do not know. I cannot say why. Six years seems to me to be a reasonable period in the case of a house like this.
If it is not sacrosanct, make it 100.
Why not have six months?
Of course, you could have six weeks.
If we like the figure six so much, why not change years to months?
Five would be in line with other sections.
The Minister's logic defeats us.
Amendment, by leave, withdrawn.
I move amendment No. 35:
In page 32, line 45, before ",or" to insert "or of a substantial part of the building, or was occupied by such person as his principal place of residence or business,".
The purpose of this amendment is to cover the case where a substantial part of the building was occupied by a person as his principal place of residence or business. Cases have been brought to our notice where a person may have constructed a flat or altered his house and provided a flat which is being let and although it may have been done for a period, when he comes to sell the house, because of this alteration or because the flat or apartment had been provided in it, it will bring him within the section. The purpose of the amendment is to ensure that if such house was occupied as his principal residence or place of business such alteration would not mean that he would be liable.
The term "substantial part of the building" is very wide and would give way to means of evasion. It is very difficult to know what "a substantial part" of the building is. On the grounds I have mentioned, because of the danger of a provision such as this giving way to evasion, I am afraid I will have to resist the amendment.
Amendment, by leave, withdrawn.
I move amendment No. 36:
In page 32, to delete "or reconstructed" in lines 48 and 49 and substitute ", reconstructed, extended or altered" and to delete "or reconstruction" in line 52 and substitute ", reconstruction, extension or alteration".
This is a consequential amendment.
Amendment agreed to.
I move amendment No. 37:
In page 32, between lines 54 and 55, to insert a new subparagraph as follows:—
(iii) The foregoing provisions of this subsection shall not apply to a holiday residence so used by an individual or his family.
The amendment speaks for itself. It is to exclude that type of holiday residence. I think the Minister recognised the point on Committee Stage. I wonder will he accept the amendment on this Stage?
I recognise also that a holiday residence can have a very wide connotation. A person's holiday residence might be substantial property in a big city. I know the type of holiday residence Deputies Cosgrave and O'Higgins have in mind, the usual seaside bungalow, or a place like that, which a man having a city residence can occupy for perhaps only a limited period of the year or only a limited period of the summer and would have to let occasionally. If he sees fit for any reason either of choice or necessity, to dispose of it then, a later amendment I propose to introduce will relieve that man of any liability in respect of any profit up to £1,500. That is an amendment to section 43.
Amendment No. 42.
Yes. That will certainly relieve the type of case I am sure Deputy Cosgrave and Deputy O'Higgins have in mind.
Surely he can appeal to the Revenue Commissioners?
Is it not better to have certain relief up to £1,500?
Have that, and also have an appeal to the Revenue Commissioners and prove to them that it was legitimately used for a holiday residence.
The Revenue Commissioners will not decide in what part of Ireland a man's holiday residence is situated or in what part he prefers to enjoy his holiday. It could be Donnycarney or Raheny.
I do not think there are many holiday places around there. Surely if a man put a case to the Revenue Commissioners that a house was used as a seaside resort or country place, he could claim freedom from tax on his property? Surely the Revenue Commissioners could deal with it at that stage? The Revenue Commissioners could hear the case, and if he could prove it was used as a holiday house, he should get relief.
I think he is getting reasonable relief in relation to a profit of £1,500.
That would be nothing over a period of three or four years.
I was absent for a while and I do not know what happened. If a person has improved his holiday home he is allowed £1,500 if he disposes of it in the market?
Yes.
Is he allowed to deduct the sum of money he spent in improving it?
Yes.
Amendment, by leave, withdrawn.
I move amendment No. 38:
In page 32, to insert "or" after "disposed of" in line 63 and to insert the following subparagraph between lines 63 and 64:
(iv) in a case in which the building was reconstructed, extended or altered, for a period of not less than six years prior to the time when the reconstruction, extension or alteration was completed no part of the building was occupied otherwise than by the person or a parent or child of the person,".
The amendment introduces a new exemption to meet cases mentioned by Deputy P. Belton and Deputy Dillon. Deputy Dillon referred to a man who was the owner of an old family residence, who converts it into a number of flats and lives in one of the flats and then sells the house. Deputy Belton instanced the case of the owner of a licensed premises, but I take it it could be any premises that would be subject to inspection under the Health Act or whatever the relevant provisions are, who is compelled by the local authority to put in toilets or to do other repairs. The purpose of this amendment is to meet those specific cases.
(South Tipperary): Does the amendment cover the case of a farmer who improves his out-premises, say, his cowshed; he then goes to live with his daughter and his son manages the farm and it is later sold. He cannot claim he was in exclusive occupation of the farm during the period. Is he liable to capital gains tax?
We are not talking about capital gains tax at all.
(South Tipperary): We will call it that.
He is not liable to be taxed on the income deriving from the sale in such circumstances.
Amendment agreed to.
I move amendment No. 39:
In page 33, line 1, to insert "or by a parent or child of his" before "as".
That is consequential.
It is more than consequential. Deputy Sweetman should give me credit for meeting the point he made.
I thought the Minister met it in the last line of amendment No. 38.
Perhaps I did.
Yes, and amendment No. 39 follows from that. However, I give the Minister full credit for meeting the point I raised.
We only wish we could give him more credit.
Amendment agreed to.
I move amendment No. 40:
In page 33, between lines 20 and 21, to insert a new subsection as follows:—
(5) This section shall not apply to any individual who occupied the land and/or buildings in question for his exclusive occupation or that of his parent or child for one year prior to the 11th May, 1965.
The amendment arises in respect of a case I put to the Minister across the House that this section should not, in any circumstances, affect a person who had been genuinely living on the premises at the date of the Budget, the date when the announcement was made in relation to the provisions of this part of the Bill. I understood the Minister at the time to indicate across the House that he was prepared to accept such an amendment. However, I saw no amendment put down by him to that effect and hence I put down amendment No. 40. In view of that, I might, perhaps, be permitted to suggest one of the reasons why I regard it as so necessary to pass some amendment like this. This is to provide that where a person was living on the premises on Budget day the provisions of the section will not apply to him. I appreciate it would be difficult, if not impossible, to prove where a man was actually living on one day. Therefore, I provided for a period of a year before that date. I think it is too long but I wanted to err in being generous to the Minister.
The reason I believe this is necessary is that I am frightened of the provisions of subsection (2), line 15 on page 32 of this section, where the word "arrangement" is met. That word "arrangement" can be made to mean anything that it is desired to make it mean for the purpose of catching a person under this section. The second reason why I am worried about this section is that it appears that it will clearly apply in the case of compulsory acquisition. It is ridiculous to suggest that there should be a liability created to income tax, corporation profits tax if it is a company or surtax if it is an individual, in a case where the interest has not been sold voluntarily but has been acquired compulsorily.
The third type of case which I am afraid may be caught by this section and another reason why I think the new subsection is necessary is that the section as it is drafted appears to apply to the purchase by an individual in possession of superior interests or intermediate interests. If the individual who is in possesion buys out the ground rent, the owners of the ground rent and the superior rent beyond that ground rent could under this section be treated as being liable for something that is not development or trading in the slightest sense of the words. I expect that it is not intended to catch them but I am afraid the section, as it is drafted, does catch them.
I am also worried about the section as drafted because it will undoubtedly in some cases—I admit frankly not a very great proportion of cases—create untold hardship. As I read the section and this part of the Bill, if a tenant for life is in possession of land as a life interest and the land is sold for development, then the assessment must be made on that tenant for life though the purchase money for the land is received by the trustees. The tenant for life gets a large assessment for income tax and surtax but the trustees receive the purchase money. That seems all wrong and at the very least there should have been a saver in the section to provide that the tenant for life would be entitled to be reimbursed by the trustees the heavy tax liability that could be involved. If that is not done, the Minister can be assured that no tenant for life will in any circumstances ever sell his land for building.
As I mentioned here on the last occasion, and as we are, I think, all agreed, one of the great difficulties at present in relation to housing is that there is far too little building land, particularly on and near the building perimeter. The next reason for my thinking it is necessary to have some sort of amendment to this section is that I am worried about the provisions in relation to the valuation going back for a period of five years. Where a lease is running out, the value of the lessor has increased very, very rapidly in the last few years and that value increasing in the last five years, will, in effect, certainly mean, as the section stands at present, a capital gains tax. I do not think it is right that that should operate.
I am also worried about the section because, if it is passed in its present form, and without amendment, we then go on to section 42 to compute the measure of the tax. For the life of me I cannot understand what subsection (2) (b) (iii) means. Does it mean developed before or after the passing of this Act? I understand that senior counsel has advised that it is beyond his wit to ascertain and direct what it means. As I say, it is not the section we are discussing; it is the means by which the liability under the section we are discussing is computed. One of the things about this whole section is the fact that the time is not fixed. I am not clear what period or passage of time is intended. Certainly, I am far from clear as to what time is effectively provided by the section.
For these reasons I think it is essential to ensure at least that everybody who is in occupation at the date of the passage of the Act will be excluded. If that is done the only people who could be affected would be those who acquire an interest after the passing of the Bill. We have taken up to the 31st July and that is up to the 1st August. If that is so, then the number of cases in which there would be a sale between now and the next Finance Bill would be very trifling and we would consider the position again then. The Minister will agree with me, I think, when I say that it is most unfortunate that a wide Part of a Bill of this nature should be discussed in circumstances in which it is not possible to give the fullest publicity to the debates in this House and to explanations given by the Minister. In particular, it is not possible for the debates to be available in printed form to anyone who is trying to understand what is in this highly technical Part, a Part, I think I could safely say, that is ploughing to a large extent entirely new ground and ground with which many of us are not familiar. I think there is, therefore, a very strong argument for saying that everyone who is in bona fide occupation at the date of the Budget should be completely excluded, if he is an individual. Of course, if it is a company I can understand the Minister's view that occupation by a company is technical occupation as a pre-development idea or pre-development dodge, if one likes to use that expression.
Rightly, or wrongly, this Part of the Bill has caused very great uneasiness throughout the community and part of that uneasiness is, I think, because there has not been the kind of publicity there should have been, with the possibility of examining home the various implications of the Bill. As I say, if it were restricted to anyone who acquired after the Budget speech we would have the breathing space the country wants of the 12 months until the next Finance Bill for the purpose of considering the problem. I understood the Minister to accept the principle of this amendment on the Committee Stage. In fact, I think he did accept it, but I am sorry to realise now, since he has not seen fit to introduce an amendment, that he must have had second thoughts in relation to it.
I should like to support Deputy Sweetman's amendment and the views he expressed. It is true to say, and this is no exaggeration, that this section has frightened the people. They do not know precisely at what it is aimed. They feel its effect could be disastrous for many who have never dealt in or contemplated dealing in a speculative way in property purchases. In his Second Reading speech the Minister told us that the object of the section was to deal with a particular example of tax dodging. Like so many other things, what is put forward as the excuse for the introduction of a section results, in fact, in a profound change in the law. We have endeavoured to examine this section line by line and to amend as far as possible.
The section goes much further than merely dealing with the example of tax dodging which the Minister mentioned on an earlier part of the Bill. There are people all over the country who feel that what may be their only asset will be seriously affected by the Bill. If, because of a change in family circumstances, they wish to dispose of that asset, they feel that here is a legislative instrument which will foist on them a load of taxation they never expected to have to meet. I know the Minister says that is not the object. I know it has been said that this will deal only with the man who speculates in property. But the wording of the section is so wide we feel a burden of taxation, which is not socially just, may be imposed on a great many people.
What Deputy Sweetman seeks in his amendment is eminently reasonable. It is in accord with our view that there should not be retrospection, that one should not change laws and conditions that people have come to expect. It is certainly reasonable to say that this section shall start as from a particular date and that there should be excluded from it people who were in bona fide occupation of their property prior to the Budget Statement of the Minister.
I would urge the Minister to meet in some way the point of view expressed in this amendment because there is considerable worry and anxiety about this provision and people are frightened. If there is that situation, something should be done about it. The danger is that there will be a complete recession from the point of view of land being available for worthwhile development and that, in present circumstances, would not be good.
I had hoped that what I said in relation to subsection (2) (b) would have reasonably reassured Deputies about the sale of land, genuine sales to people, which is subsequently developed and the development is not subject to a contract of which the vendor was aware before sale. I should agree with Deputy Sweetman that I thought the suggestion he put to me on Committee Stage was worthy of further consideration, that it was not unreasonable and I probably used some words to that effect.
I cannot find it in the report, unfortunately.
But when I looked at the import of the amendment, I discovered that it would open the way to evasion or avoidance to a considerable degree. The proposition put by Deputy O'Higgins now would seem to suggest that once an avoidance device is set up and in operation, we ought not change the law to catch it. That is what happens in all Finance Acts. On the wording of the amendment, it would be possible for a person, although not a company, to be a builder of some substance, who, having bought a house and say, 20, 30, 40 or 50 acres of land, stayed in occupation of it for just one year or had it in the occupation of his parent or child, to proceed to develop it and would be absolutely free from income tax on the profits. That would open the door to considerable avoidance of income tax.
As far as Deputy Sweetman's fears are concerned, and he mentioned four or five, I shall deal first with the use of the word "arrangement" in subsection (2). This is an arrangement or some transaction of which the vendor would be expected to have knowledge and it would have to be proved that this was so by the Revenue Commissioners. I was concerned about the difficulties in the case of a compulsory acquisition, and having revised the section fairly fully, I felt it would be unusual, to say the least of it, that a local authority which is usually the type that would carry out compulsory acquisition, would have made a contract in advance for the development of the property.
But will they have made an "arrangement", not a contract? If the Minister would drop "arrangement", I would be much happier.
"... Or is made in pursuance of any arrangement ..." That would seem to imply that the person is party to a contract.
But the acquisition would be in pursuance of the arrangement.
The disposition must be in pursuance of the arrangement.
If you equate acquisition to disposition.
As I said, I had some sympathy with the fears raised in this connection but what I propose to do is this: let the section stand as it is and watch the situation, and if it did develop in such a way as to charge a person to tax who had to sell property acquired compulsorily by a local authority, then I can have a look at it again and, if necessary, give whatever provision would be involved in such a case retrospective effect to relieve a person who might be caught. Under the provision as it stands, I do not envisage that a person would be caught.
Deputy Sweetman also mentioned the case of a tenant for life but I do not think in such a case the tenant for life is likely to be caught, having regard to the provision of subsection (1) of section 41 which refers——
Does the Minister mean that the trustees will get the profit or gains? Is that his point?
I think the Deputy mentioned a life tenant who could not possibly touch the purchase money and therefore would not be able to take advantage of the profits or gains.
Does the Minister think there would be an assessment on the trustees? Is that his point?
That would depend on the circumstances of each case. It is something that is being raised now for the first time and it is very difficult to examine it in detail.
There will have to be an assessment on somebody, will there not?
The Deputy referred particularly to paragraph (f)——
Yes, I do not understand that. Does it mean development before or after the Act, or either?
Either. If it helps the Deputy, I could read the part of the brief dealing with paragraph (f) as a whole:
A person might have acquired land, by purchase or otherwise, fifteen years ago, say. At the time when he acquired it he might not have been engaged in dealing in or developing land. He might, for example, have utilised the land for a number of years afterwards for agriculture. If at a later stage he developed the land by building, it would be inequitable to take the original value of the lands as trading stock in his accounts. The broad effect of this paragraph is that, if the person sets about developing or disposing of the land within five years from the time he acquired it, the actual cost of acquisition or, where the land was not purchased the market value at the time of acquisition is to be the initial valuation of the land as trading stock. In any other case the initial valuation is to be the market value five years before the person embarks on development.
These are all the points that were raised. For the reasons I have mentioned initially, in particular the prospect of evasion that acceptance of the amendments would open up, I will have to resist them.
Could the Minister outline in more detail what are the prospects of avoidance? There is no use in merely talking about "the prospects of avoidance".
I mentioned the case of a builder who, having purchased property, goes in to occupy it himself, or occupies it through his parent or children for a year——
Why would he do that before the Budget, not knowing that any such section was coming into force? Or had he any prescience or foreknowledge? Surely the Minister is not going to accept that he knew what was going to be in the Budget? I do not accuse him of a leak of that sort.
He could do it to escape liability under existing law, under section 6 of the 1935 Act.
That was a washout.
Because of——
Because of the word "intention".
Yes.
I could accept the Minister's view, if it was a year after he made his Budget speech. If it arose any time then, that would be reasonable but before the Budget speech, nobody could have known. I think the Minister's reaction on the last day when he said that was a reasonable suggestion was the right reaction and his reaction today is wrong.
He could have occupied it for the year, or perhaps for the portion of the year that has not yet run, with the intention of avoiding.
We have got away from "intention"; let us not go back to it trying to defend the section. It is a bad section unless you provide that anybody who was living in a place on Budget day was protected.
In the case of compulsory acquisition, if a farmer has been residing in a place for over six years and has bought it at £20,000 and sells it at £70,000, is he taxed on the £50,000 profit?
No.
And the same applies to a farmer who bought for £20,000 and sold for £70,000 and has no interest in it himself——
If he has no knowledge of a contract to develop, if there is no contract in existence.
There might be an "arrangement". If I have gone to a builder and said: "Look, will you give me a quotation for what you will build on that if I buy it?" and then go to the Minister and buy from the Minister, there is an arrangement in existence and I have bought in pursuance of the arrangement.
The trouble is that "arrangement" is not defined.
I agree in relation to the licensing provision that the Minister is right to catch them but in a straight purchase and because I have got a quotation from a builder before I buy, the word "arrangement" catches under the section and it is a capital gains tax.
The trouble is that it is too wide.
Amendment put.
The Dáil divided: Tá, 58; Níl, 69.
Tá
- Barrett, Stephen D.
- Barry, Richard.
- Belton, Luke.
- Belton, Paddy.
- Burke, Joan T.
- Burton, Philip.
- Casey, Seán.
- Clinton, Mark A.
- Cluskey, Frank.
- Connor, Patrick.
- Coogan, Fintan.
- Corish, Brendan.
- Cosgrave, Liam.
- Gilhawley, Eugene.
- Governey, Desmond.
- Harte, Patrick D.
- Hogan, Patrick (South Tipperary).
- Hogan, O'Higgins, Brigid.
- Jones, Denis F.
- Kenny, Henry.
- Kyne, Thomas A.
- Larkin, Denis.
- L'Estrange, Gerald.
- Lindsay, Patrick J.
- Lynch, Thaddeus.
- Lyons, Michael D.
- McAuliffe, Patrick.
- McLaughlin, Joseph.
- Mullen, Michael.
- Costello, Declan.
- Crotty, Patrick J.
- Desmond, Eileen
- Dillon, James M.
- Dockrell, Henry P.
- Dockrell, Maurice E.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Esmonde, Sir Anthony C.
- Farrelly, Denis.
- Fitzpatrick, Thomas J. (Cavan).
- Flanagan, Oliver J.
- Murphy, William.
- Norton, Patrick.
- O'Connell, John F.
- O'Donnell, Patrick.
- O'Donnell, Tom.
- O'Hara, Thomas.
- O'Higgins, Michael J.
- O'Higgins, Thomas F.K.
- O'Leary, Michael.
- Pattison, Séamus.
- Reynolds, Patrick J.
- Ryan, Richie.
- Sweetman, Gerard.
- Tierney, Patrick.
- Treacy, Seán.
- Tully, James.
Níl
- Aiken, Frank.
- Allen, Lorcan.
- Andrews, David.
- Blaney, Neil T.
- Boland, Kevin.
- Booth, Lionel.
- Boylan, Terence.
- Brady, Philip.
- Brennan, Joseph.
- Brennan, Paudge.
- Briscoe, Ben.
- Burke, Patrick J.
- Calleary, Phelim A.
- Carter, Frank.
- Carty, Michael.
- Clohessy, Patrick.
- Colley, George.
- Collins, James J.
- Corry, Martin J.
- Cotter, Edward.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Crowley, Honor M.
- Cunningham, Liam.
- Davern, Don.
- de Valera, Vivion.
- Dowling, Joe.
- Egan, Nicholas.
- Fahey, John.
- Fanning, John.
- Faulkner, Pádraig.
- Fitzpatrick, Thomas J. (Dublin South-Central).
- Flanagan, Seán.
- Foley, Desmond.
- Gallagher, James.
- Geoghegan, John.
- Gibbons, James M.
- Gilbride, Eugene.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Hillery, Patrick J.
- Hilliard, Michael.
- Kenneally, William.
- Kennedy, James J.
- Kitt, Michael F.
- Lalor, Patrick J.
- Lemass, Noel T.
- Lemass, Seán.
- Lenihan, Brian.
- Lenihan, Patrick.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacEntee, Seán.
- Meaney, Tom.
- Millar, Anthony G.
- Molloy, Robert.
- Mooney, Patrick.
- Moore, Seán.
- Moran, Michael.
- Nolan, Thomas.
- Ó Briain, Donnchadh.
- Ó Ceallaigh, Seán.
- O'Connor, Timpothy.
- O'Malley, Donogh. Smith, Patrick.
- Wyse, Pearse.
Tellers: Tá, Deputies L'Estrange and T. Dunne; Níl, Deputies Carty and Geoghegan.
Amendment declared lost.
Debate adjourned.