Vol. 283 No. 2
I move amendment No. 1:
In page 4, line 24, to delete "section 23 (4)" and to substitute "section 23 (2)".
Section 23 was amended in Committee with the result that the definition of "local authority" is now in subsection (2) whereas before the change it was in subsection (4). The amendment therefore made a correction of the cross-reference.
I suggest that amendments Nos. 2, 3 and 4 be taken together.
I move amendment No. 2:
In page 5, line 16, after "partial intestacy" to insert "or by virtue of the Succession Act, 1965,"
The amendments are designed to ensure that where property passes to a surviving spouse under sections 56 and 111 of the Succession Act, 1965, or to children by virtue of a provision made under section 117 of that Act the treatment for capital gains tax will be the same as if the property had passed under a testamentary disposition. In the absence of the words "or by virtue of the Succession Act, 1965," there would be a capital gains tax charged on the transfer of property to them under the Succession Act, 1965.
These amendments appear to be in order as far as we are concerned except for one point which the Minister might explain. The Minister will know that in the first two amendments he is proposing to insert the words "by virtue of the Succession Act, 1965," after the words "partial intestacy" but in amendment No. 4, line 25, the reference to "partial intestacy" is omitted. Should there not be a reference to "partial intestacy" also in line 25?
It seems to me that partial intestacy is an intestacy in respect of that part.
In the previous line it says "Intestacy or partial intestacy".
We do not talk about partial disposition either. The disposition or intestacy are the words which describe the manner in which the property passes. There is no quantification in those two words, "disposition" or "intestacy". Quantification arises further up where one is dealing with a testamentary disposition or an intestacy or partial intestacy.
If the Minister is satisfied I raise no objection.
I move amendment No. 3:
In page 5, line 22, after "partial intestacy" to insert "or by virtue of the Succession Act, 1965,".
I move amendment No. 4:
In page 5, line 25, after "intestacy" to insert "or by virtue of the Succession Act, 1965,".
I move amendment No. 5:
In page 8, to delete lines 34 to 40, and to substitute the following:
"(2) The adjustment shall be such as to secure that the amount of capital gains tax to which he is chargeable for that year of assessment shall not exceed the further amount of income tax to which he would be chargeable if, in addition to any other liability to income tax, he was chargeable to income tax for that year under Case IV of Schedule D—".
This amendment is to delete lines 34 to 40 and to substitute the words:
The adjustment shall be such as to secure that the amount of capital gains tax to which he is chargeable for that year of assessment shall not exceed the further amount of income tax to which he would be chargeable if, in addition to any other liability to income tax, he was chargeable to income tax for that year under Case IV of Schedule D.
The obligation on the taxpayer to make a claim under section 6 was removed by a Committee Stage amendment with the result that an adjustment was made mandatory. Such an adjustment could, however, result in an increase of tax. It was intended that the adjustment would be made only when it was in the taxpayer's favour and this amendment makes it clear that only adjustments by way of reduction of liability may be made.
There does not appear to be any provision in this amendment for the payment of interest on an overpayment. I have an amendment coming up later which seeks to provide for this. I understood the Minister to say that in effect this amendment is consequential on an amendment made on Committee Stage. Is that correct?
I do not recall that this aspect of the matter was adverted to on Committee Stage.
I raised on Committee Stage the possibility that a wrong assessment might be made under this section and inquired as to the mechanism for readjusting the wrong assessment and making the repayment. This is where the question of the interest on the repayment arose for which provision does not appear to be made here. The effect of the proposed amendment, in so far as I can see, is that it should have the effect of ensuring that where there is a further amount chargeable it will not exceed the amount of income tax which would have been chargeable. In so far as it is putting that kind of limitation on it the amendment is acceptable to this side of the House but I am somewhat disappointed that the Minister has not provided for the possibility of a mistake being made in the assessment with the necessary consequence of readjustment of the assessment and perhaps repayment and consequential interest on that repayment. I have no objection to this amendment.
Schedule IV of the Bill adapts for capital gains tax purposes the income tax provisions in relation to the payment of interest in the same circumstances as interest arises on a repayment under the income tax laws. This provision that we are seeking to insert in this amendment arises out of the case that was made that the Revenue Commissioners should be under an obligation to make the adjustment and not to leave it to the option of the taxpayer. It is a little unreasonable to be complaining that, as a result of coming to an Opposition suggestion that the Revenue Commissioners should discharge the obligation of making the assessment at the lower figure, there should now be some additional provision in this section dealing with interest. The amendment made on Committee Stage and this amendment will operate to the relief of taxpayers, not to their detriment.
(Dublin Central): Are we adopting the same procedure here as regards the repayment of interest as obtains under PAYE and other income tax legislation?
This section does not deal with this at all. Schedule IV deals with the interest situation.
Which is not entirely satisfactory. However, I have an amendment dealing with this matter later.
I move amendment No. 6:
In page 10, after line 12 to add the following:
"Provided, however, that the shares issued for cash shall not be assets for the purposes of this Act."
There is a typographical error in this amendment which is my fault and not that of anybody who was transmitting it. It is that the definite article appears before the word "shares" and it should not appear there. It should read:
Provided, however, that shares issued for cash shall not be assets for the purposes of this Act.
On Committee Stage I referred to this matter. On the 13th February I referred the Minister to what I understood to be the interpretation placed on the clause in this section which is exactly similar to that contained in the British legislation by some commentators in Britain. Having drawn the Minister's attention to it I suggested that he might look into the matter. At column 448 of the Official Report of 13th February, 1975, I said:
What I should like to know is could the Minister say whether this will cover the issue of shares in cash. I understand that some British commentators, in regard to a similar provision in British legislation, take the view that it would cover the issue of shares for cash. However, I am not clear on this matter.
The Minister said:
I am interested in the Deputy's comment. I have not had this issue brought to my notice. I shall certainly have a look at it.
I added:
If the Minister would have a look at it and then perhaps on the next Stage he would get an opportunity of commenting on the matter.
I put down the amendment largely to give the Minister an opportunity of indicating now what view he takes on the meaning of paragraph (c) of subsection (1) of section 7, as to whether or not it does cover the issue of shares for cash.
We are not responsible for what some commentators may say nor can we legislate in response to some far-fetched interpretation by some British commentators. The position under our law will be that there will be no charge on a company which issues shares for cash. If the amendment were to be pressed and accepted all shares would become non-chargeable assets, thus gains made on the stock exchange would not be chargeable. It would be open to people, including very wealthy people and speculators, to make very significant gains on the stock exchange free of any tax liability. Having regard to all the exemptions provided in the Bill the only assets of any significance which would then be liable to tax would be lands. It would even be possible then for people to find a convenient way of avoiding the tax on land by providing for the ownership of land through the medium of companies. So, the amendment, if accepted, would make nonsense of the whole Bill. It will be noted that there are special provisions made in section 4 that foreigners cannot avoid tax on land and mineral rights in the State and assets situated in the Continental Shelf by the formation of a company. If this amendment were to be accepted the provisions of section 4 would be rendered ineffective.
If the Minister's——
I wish to remind Deputies that we are now on Report Stage. Is the Deputy replying?
Yes. If the Minister's reading of the section as it stands is correct, well and good, but the purpose I have in drawing his attention to the interpretation placed on this in Britain and in putting down the amendment for this Stage was to enable him to consider whether there was any validity in the argument that had been put forward in Britain on the same wording so that if there was some validity in it he could perhaps redraft the relevant position of the section to ensure that what he was trying to achieve would be achieved. If he is satisfied that that is so and that it is being achieved then as far as I am concerned my purpose in raising this has been achieved.
I do not wish in any way to undermine the scope of the capital gains tax but if it should happen that as a result of the wording of paragraph (c) the Minister should find it undermined in future he will, I hope, recall the fact that I have drawn his attention to the possible interpretation of paragraph (c).
An aspect——
I am sorry. Deputy Colley, it would seem, has now availed of his right to reply and that would seem to conclude the debate on the amendment.
I thought a Deputy was entitled to speak.
This is the Report Stage.
I understand that.
Members can speak only once.
Yes, I understood that.
A question, perhaps.
Thank you, a Cheann Comhairle. The only question I would like to ask the Minister in this regard is simply this: is not the essence of the point that, accepting everything the Minister said, there is a danger that as the wording stands the total assets of the company if there were extra shares issued would be increased and that pro tanto there would be a gain for all shareholders, and so on? There is that other danger in it too. Would he consider that? I reinforce Deputy Colley's point and I will not say any more. I will not trespass on the Chair's indulgence. I would have to elaborate. Thank you.
(Dublin Central): At one point during the Committee Stage reference was made to this particular aspect, in regard to Deputy Colley especially being allowed to speak only once. There are a lot of amendments. The Minister, while he did not give an undertaking, did mention that at least he would not object if Deputy Colley, at least, was allowed to speak twice on a few occasions. You will find that in the Official Report. I know that this is Report Stage and that the procedure is laid down. That matter was raised on Committee Stage.
Deputy Colley on his own amendments would have the right to speak twice, when moving and when replying.
(Dublin Central): I do not think that that is what he had in mind.
Does that mean that we have to get in between, to let Deputy Colley in the second time?
Yes.
I think we have to take it that way.
Deputy Fitzpatrick is right in saying that on certain matters I did suggest to the Minister, in view of what was happening on Committee Stage and withdrawal of amendments, and so on—I am speaking from recollection—in cases where the Minister was perhaps somewhat at a loss at the time to explain particular points that were arising—I did suggest in those circumstances that it might be necessary on Report Stage to recommit certain sections of the Bill. The Minister, as Deputy Fitzpatrick said, did not give an undertaking to that effect but did indicate that in such circumstances he would not object. That was in relation to particular aspects of the Bill. If it is necessary, when we come to that, I will so propose.
We will ask and in the meantime we will try to be disciplined.
There are two amendments relegated to a committee. Amendments Nos. 31 and 39 are being recommitted.
I was not aware of that.
In which case Deputies may speak as often as they wish.
Amendments Nos. 31 and 39?
Amendments Nos. 31 and 39 are recommitted. These will be taken in Committee, as it were.
How do we know that? You know it but how do we know it?
We would hope to have agreement on that, surely.
I am not objecting. I did not have any advance notice of this.
That is my information.
In other words, this is something new that goes a little beyond Report Stage?
That is the significance.
Yes, that is fair.
I move amendment No. 7:
In page 11, to delete lines 24 to 31, and to substitute the following:
"(6) Where an asset is acquired subject to any interest or right by way of security subsisting at the time of its acquisition, the full amount of the liability thereby assumed by the person acquiring the asset shall form part of the consideration for the acquisition and disposal in addition to any other consideration."
The real purpose of this—whether it is achieved, I do not know; the Minister will have something to say about this—is to try to secure greater clarification in subsection (6) of section 8. The Minister may recall that on Committee Stage I argued that this subsection as drafted was in fact contradictory because as it stands in the Bill the first portion of the subsection reads:
An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of any acquisition of it, and as being disposed of free of any such interest or right subsisting at the time of the disposal...
That is the first part of the subsection. That is clear enough but the next part seems to me to contradict it. It says:
...and where an asset is acquired subject to any such interest or right the full amount of the liability thereby assumed by the person acquiring the asset shall form part of the consideration for the acquisition and disposal in addition to any other consideration,
which seems to me to be saying the opposite.
In dealing with this matter on Committee Stage on 13th February, 1975, at column 461 of the Official Report, I said:
I appreciate that this is not a matter that can be settled across the floor of the House. I would like the Minister to look at it again because I think there is a direct contradiction in this. While the Minister is having a look at it, would he consider something on these lines "where an asset is acquired subject to any interest or right by way of security subsisting at the time of any acquisition of it, and had been disposed of free of any such interest or right subsisting at the time of the disposal, the full amount of the liability thereby assumed by the person acquiring the asset shall form part of the consideration for the acquisition and disposal in addition to any other consideration." That is what the subsection is trying to say. Perhaps the Minister would consider what I have proposed?
The Minister said:
I will have it examined.
The Minister's amendments do not appear to cover this subsection at all and, as I say, in an effort to achieve a greater degree of clarity I have proposed this amendment. Perhaps I do not understand the subsection but it seems to me my amendment does what the subsection is trying to do. If I do not understand the subsection, particularly having regard to the discussion we had on Committee Stage, then the Minister may take it that there will be a number of other people who will not understand it either. The beginning of the subsection states one proposition—I do not think it is a correct proposition—and the second part of the subsection seems to me to state a directly contradictory proposition.
The first part of the subsection states that the asset shall be treated as having been acquired free of any interest or right at the time of acquisition. I do not know why it should be so treated. The second part goes on to say it will not be treated in that way. It provides that where it is acquired, subject to any interest or right, that is added to what is, in effect, the normal consideration in order to determine what is the consideration both with the acquisition and the disposal. It seems to me that the second portion of the subsection is saying the correct thing and the first portion, which is contradictory, is stating something which, I think, does not stand up. For that reason my amendment suggests a slight amalgamation of portion of the beginning of the first part with the second part of the subsection. It is designed to achieve what I believe is being sought to be achieved. The effect of it would be that, where an asset is acquired subject to any interest or right by way of security subsisting at the time of its acquisition, then the full amount of the liability assumed by the person acquiring the asset will be part of the consideration. Putting it in simple terms, if a person were to purchase an asset for £20,000 subject to a mortgage of £5,000 and if he were to take on the liability for the mortgage, then for the purposes of assessment the cost of acquisition or cost of disposal. depending on which part you are looking at, would be £25,000 and not £20,000. In effect, that is what the second part of the subsection says but the first part of the subsection says "free"; you disregard the mortgage in a case like that. This was the point I raised on Committee Stage. I trust the amendment clarifies the position and is doing what was intended to be done. If it is not, then the Minister should have some amendment clarifying the effect of this subsection.
We are, I am afraid, at loggerheads here. Deputy Colley's amendment makes the situation more confused and, whereas there is no contradiction in the section, the amendment introduces a contradiction. The subsection is concerned with four basic situations in regard to acquisition and disposal:
(1) Acquisition free of a charge and disposal free of a charge.
(2) Acquisition free of a charge and disposal with a charge.
(3) Acquisition with a charge and disposal free of a charge.
(4) Acquisition with a charge and disposal with a charge.
The first part of the subsection establishes the principle that the value to be taken is the full value without any encumbrances and the second part elaborates on this and sets out that, where a liability is assumed, the value of that liability is to be added to any other consideration given in order to get the full value of the asset. The subsection covers the four basic situations. Deputy Colley's alternative provides for an acquisition subject to a charge and a disposal free of charge and it thus covers only one of the possible situations. If I may say so, without disrespect, the second part of Deputy Colley's amendment is contradictory to the assumption of disposal free of charge. I have a note here of the suggestion he made on Committee Stage and I see he has not, in fact, put that into his amendment on this Report Stage. I am not faulting him. I saw some of his amendments late last night and the rest only this morning. I was involved here and in the Seanad and it was a late hour before I received any amendments at all. When the Deputy looks at the four situations I have outlined, I think he will see his particular amendment does not cover these four situations and the subsection must, therefore, be left as originally drafted.
Does the Minister mean the first half of subsection (6) means that, if an asset is acquired which carries with it a liability, the net value is taken: that is, the liability is deducted from the asset in arriving at the total value? Is that correct?
The Minister described four possible situations which he said were being covered by the subsection. With due respect to the Minister, I do not think they are being covered by the subsection at all. That may have been the intention but that is not what is happening. If one takes the first part of the subsection, it provides:
An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of any acquisition of it...
What does that mean? It does not say where an asset is being acquired and there is no outstanding interest or right, which is situation No. 1 the Minister described; that is not covered at all. It says it shall be treated as having been acquired free of any interest or right; that is, irrespective of whether there is an interest or right involved. If there is an interest or right involved, why should it be treated as having been acquired free of that? Of course, it should not, and the second part of the subsection says precisely that it will not be so regarded, directly contradicting the first sentence of the subsection. That was the basis of my objection originally.
May I interrupt to point out that it is wrong to take the subsection only as far as the first comma? You go right down to the semicolon and you then have the whole picture as to the manner in which the asset is to be treated.
The first part reads:
An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of any acquisition of it, and as being disposed of free of any such interest or right subsisting at the time of the disposal;
If one takes that portion of the subsection on its own it would seem to suggest that if, in fact, an asset is subject to an interest or right and it is disposed of—in any disposal there is, of course, an acquisition and disposal—although there is an interest or right subsisting the treatment of the asset for the purpose of the acquisition and disposal is to regard it as being free of any such interest or right. Can the Minister take any other meaning out of that, as far as the semicolon? It seems to be demonstrably true that that is what it is saying. That also is something which does not make sense.
The second part of the subsection goes on to say what is, in my opinion, the correct position, that if there is an interest or charge subsisting, it is to be taken into account both for the purpose of acquisition and disposal and is to be added to the cost, the ordinary consideration. That is what my amendment is saying: "Where an asset is acquired subject to an interest or right." Is it not saying "if the asset is not subject to an interest or right, you do not do anything with it?" It reads:
Where an asset is acquired subject to any interest or right by way of security subsisting at the time of its acquisition, the full amount of the liability thereby assumed by the person acquiring the asset shall form part of the consideration for the acquisition and disposal in addition to any other consideration.
That, in effect, is saying what the second part of the subsection is saying, but omitting the first part which, with due respect to the Minister, I still contend, as I did on Committee Stage, is contradicting the first part of the subsection.
The four situations outlined by the Minister may have been intended to be covered by the subsection but they are not. The first case states:
An asset shall be treated as having been acquired free of any interest or right ... and as being disposed of free of any such interest or right subsisting ...
If words mean anything that says that even though there is an interest or right subsisting, they are to be treated as being disposed of and acquired free of that interest or right. Is that not what the first part of the subsection says?
The Deputy will recall the four cases I gave. The first part covers the first—the acquisition, free of charge and disposal free of charge—and the fourth—acquisition with a charge and disposal with a charge.
Let us take the first— acquisition free of charge. It reads:
An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time ...
That means there was an interest or charge subsisting. That is not case No. 1 mentioned by the Minister. He mentioned a case where there is not any such. Is that right?
No. The second and third cases are covered by the rest of the subsection. The second is acquisition free of charge and disposal with a charge, and the third is acquisition with a charge and disposal free of charge.
That is the theoretical breakdown of the possible cases there may be, and I agree with the breakdown. I suggest that that is not what the subsection is doing. We will take the first case mentioned by the Minister—acquisition free of any interest or charge. The first part reads "an asset shall be treated as having been acquired free of any interest or right ...". It will be "treated" that way. It does not say that "in a case where there is no interest or charge, it will be treated as having no interest or charge." The existing wording suggests that it will be treated in that way, even if there is an interest or charge subsisting. Otherwise, what sense does it make to say it is to be treated in that way?
I suggest that while the type of cases that can be envisaged by the Minister is correct, the subsection does not deal with it and my amendment, or something along those lines, covers the situation. Where there is no outstanding charge either on the acquisition or the disposal, no special provision is necessary. Where there is an outstanding charge on the acquisition, it is necessary to provide that if a liability is taken over it will be part of the consideration or, alternatively, if an outstanding charge is part of the disposal, that will be deemed to be part of the consideration. My amendment is doing that.
I also suggest that the subsection as it stands is that—if one can make any sense of it at all and analyses it —amounts to a contradiction between the first and the second part of the subsection. I hope the Minister will see that while the analysis of the possible cases that can arise which he has given is correct, there is not anything in the subsection which adds up to treatment of the four possible cases in the way he suggested. On the contrary, the effect of the use of the word "treated" in the first line is to suggest something artificial. In other words, where there is an interest or charge we are to treat the matter as if such did not exist. That is not what the Minister is trying to do, as is made clear in the second part of the subsection.
In my view, my amendment covers the position the Minister is trying to cover but, as I said earlier, if it does not, the Minister should not leave subsection (6) as it stands because, if he does, he can be certain it will lead to litigation and uncertainty.
Is the amendment withdrawn?
That is not a major matter. On the other hand, I feel that the point raised on Committee Stage, has not been met. Therefore, I will not withdraw the amendment.
I move amendment No. 8:
In page 12, after line 3, to add the following :
"and provided also that whenever a disposal inter vivos results in a liability both to Capital Gains Tax and to Gift Tax, only such one of those taxes as imposes the higher amount of tax shall be chargeable.”
The Minister will recall that this point was raised also on Committee Stage. It was pointed out that in the Government's White Paper it was specifically set out that both capital gains tax and gift tax would not be applied at the same time. Subsequently, when the Bills emerged, it appeared that that arrangement was gone back on and that in fact both taxes would be applied to the one transaction.
We had lengthy discussion on this matter on Committee Stage. What seemed to emerge eventually was that the reason for this was that, unless it was provided that both would apply, the Minister feared there would be avoidance loopholes which could defeat the object of the exercise. We went into some detail in pointing out the difficulties and, in some cases, hardships that could arise by the application of both taxes to the one transaction, but the Minister felt he could not depart from this because of the loopholes he said would be created even though the White Paper had said that only one of the taxes would be applied.
On the 18th February last in this House, as reported at columns 723 and 724, as we came to the end of the discussion, I said:
When we adjourned I was suggesting to the Minister that he might consider, in relation to this amendment, an alternative by which there would be applied either capital gains tax or capital acquisitions tax to one transaction, whichever was the higher. Would the Minister give some further consideration to this or consider some variant to it? If he did he would find there would not be avoidance in the sense that whichever was going to yield the greater amount to the Exchequer would be the tax applied. At the same time he would maintain the principle adumbrated in the White Paper of not applying both taxes to the one transaction. I appreciate that one tax is payable by one party and another by another but the Minister accepted in the White Paper that in such a case payment of one tax would be sufficient. If he gives some further consideration to something on the lines I have suggested he might be able to achieve what he originally proposed to achieve in the White Paper and at the same time close the loophole to which he has referred and which he has put forward as the main reason for rejecting this amendment and departing from the proposals in the White Paper.
The Minister replied:
I have always shown willingness to consider the views of other people. The fact that the legislation is different in some respects from the White Paper is an indication that I listened to the representations made to me. What the Deputy has said in relation to this amendment will certainly be considered. If something can be done, without offending against the principles of the Bill and a fair and equitable taxation without avoidance facilities, I will be only too happy to do it.
The Minister's amendments do not deal with this matter. Therefore, I put down this amendment and, as I have indicated, it is designed to do what the Government said they would do in the White Paper, that is, to apply either gift tax or capital gains tax, but not both. But, since it also provides that one of them only will apply and the one which will apply is the one which will give the greatest yield to the Exchequer, then it should be a deterrent to any avoidance the Minister fears because, whatever way people want to manoeuvre the situation to avoid liability to tax, if the effect is that they will pay whichever is the higher tax, that would seem to me to be a fairly effective deterrent to any manoeuvring of the circumstances of a particular case. I do think that, not alone because the Government said in the White Paper they would not apply both taxes, but from the point of view of equity and justice, both taxes should not be applied at the one time to the one transaction.
I suggest that this amendment affords the Minister the opportunity of achieving equity and justice, of protecting the Exchequer against avoidance and, as a result, improving this Bill and, to the same extent, also improving the Capital Acquisitions Tax Bill. Therefore, I would hope the Minister would not have any difficulty in accepting this amendment which I believe closes the loopholes he fears exist and, at the same time, does what the Government said originally they should do, and is being fair and equitable to the taxpayers concerned.
For a number of reasons this amendment is unacceptable. In the first place, there is no such thing as a gift tax. Therefore, the reference to gift tax in the amendment is meaningless.
What does the Capital Acquisitions Tax Bill call it?
Capital acquisitions tax.
Yes, but in the Bill, what is it called?
The Capital Acquisitions Tax Bill is a Bill only. There is, as yet, no capital acquisitions tax. Therefore it would not be open to the House to adopt an amendment which assumes that a certain tax may be introduced at a later date. If the Deputy feels strongly about this the appropriate way to deal with it would be to make some such provision in the Capital Acquisitions Tax Bill. Far be it from me to urge him to put down an amendment, but he will accept that that would be the correct procedure. We cannot at this stage anticipate what the House may or may not do in relation to capital acquisitions tax. Therefore, if this issue is to be debated it will have to be on the Capital Acquisitions Tax Bill.
Briefly, on the principles, I want to point out that there are two different taxpayers. The taxpayer in the capital gains tax is the person who makes the gain, the person who is disposing of the asset, and he pays the tax only on the gain made between the time of acquisition and the time of disposal. Capital acquisitions tax will be paid by the beneficiary or the person who receives a gift from another. Then the beneficiary will pay the tax only when the gift exceeds extremely generous thresholds indeed. The Government's undertaking, and the one which we are fulfilling, is to abolish death duties and replace them by a system of capital taxation confined to the really wealthy. The reality of the situation is that capital gains tax and capital acquisitions tax will be payable only by people who are extremely fortunate to be parting with or receiving very substantial sums of money.
I do not think it is inappropriate, in those circumstances, that both the person disposing of an asset should pay capital gains tax and the person receiving a very substantial gift should pay capital acquisitions tax. In the vast majority of cases there will be no question of both taxes being paid. If people are in fortunate circumstances that liability arises I do not think it is inappropriate that both parties should pay. If the donor decides or imposes a condition on conferring a gift on the other so that the beneficiary will pay the donor's capital gains tax the value of the gift will be reduced by the amount of capital gains tax if the donee pays on behalf of the donor. To that extent there would be a reduction in the value of the gifts and, therefore, a reduction in the amount of capital acquisitions tax to be paid.
All in all, bearing in mind that we are dealing here with very substantial transfers of property, I say, with respect, that in equity there is no need to accept the amendment and it would be contrary to the Government's intention to levy an appropriate amount of tax where substantial property disposals take place and, therefore, I recommend its rejection.
On the technical point about where this amendment fits in, if the Minister confined himself to that he would have been taking a very narrow approach to the substance of this Bill. I take it what he really means is that if any such amendment were to be accepted or to be considered it should be deferred for consideration under the Capital Acquisitions Tax Bill. Is that what the Minister is saying?
Yes, from a procedural point of view.
The Minister is saying from a technical point of view that the word "gift" is not defined in this Bill and to bring it in here would imply the importation of a new definition. In technical law I accept the Minister's point on that but I am very glad he did not stand on it and went on to the other argument.
I can see that there are two points of view here. I am not saying that what the Minister has said is not without merit. I do not want to anticipate a discussion on the other Bill but we cannot ignore it. The Minister's colleague, the Minister for Lands, was deputising for him when I raised the question of in pari materia and I do not intend to delay the Minister or the House with that argument now. The idea of the capital gains tax is that if anybody deals with property and assets in what is broadly classified as a capital transaction and if there are any monetary gains accruing in that, the State will get a rake off that. All this dressing up about sociology and all the rest of it is primarily designed to get money to run the State. The social effect of capital gains and these things is another matter.
The first thing about capital gains is that in relation to any monetary gains resulting from business transactions, the buying and selling of property, which is technically called assets in this Bill, the State will take a proportion of it. This was the principle but it specifically applied to buying and selling transactions. Then, of necessity, in order to avoid evasion and to capture all the ways that monetary value can be measured, the necessary complications had to be introduced so that things would be deemed to be monetary gains when in fact they were not actually gains directly measured by an increase in price.
That does not get away from the fact that the fundamental approach to this Bill was that it was a tax on any profits made in the buying and selling of property. That pretty well sums up the philosophy of this Bill we are discussing. At the same time, the Minister is introducing two other Bills in pari materia. I accede to the Minister's technical point but I am also glad that he gave me the opening to discuss the thing without going into any detail. The wealth tax comes into this also. The gift tax which will be applied is an additional tax. In principle it is to supply the gap that is left where capital transactions occur which cannot be brought within the category of buying and selling because it is the nature of voluntary disposal, or, in the case of death, involuntary disposal.
The Minister is taxing all transactions where property and benefit passes and this deals with the buying and selling side of the story. The Capital Acquisitions Bill will deal with the voluntary gift transfers and with the question of succession on death. They are all part of the principle of taxing the transfer of capital where there is a benefit involved. The Minister has pointed out that he is giving greater benefits in one case than the other, and I see the difficulty created for the Minister in that. I understand the point he is making in this regard. But in between, covering both, there is a wealth tax. If property passes in the category of buying and selling and there is a gain it is captured by this Bill and a tax is payable. If it is in the nature of a gift, inter vivos or post-mortem, a tax will attach there with a difference in regard to reliefs. In either case when it comes to the threshold we are going to have the further liability of the wealth tax.
The Minister mentioned that he would only get the wealthy and told us of the generous thresholds he was giving, not so much in the wealth tax, but there are thresholds. The wealth tax will get the person if there is a capital gain, and the people who are likely to make capital gains are those who are likely to be caught by the wealth tax. The people most likely to be caught by all this legislation are a class which the Minister, from one point of view, said are well able to bear this. We should also have regard to what they can bear and to reasonable equity in the matter. We are now at the stage of piling it on unjustly, in the long run defeating any return which will ultimately accrue and with no great benefit to the community. In fact, this will result in positive dangers to the community. When considered from that point of view there is merit in Deputy Colley's amendment even though there is merit in the approach of the Minister. Would the Minister take Deputy Colley's point and see whether, in the totality of the situation, the statement in the White Paper might not have been the more equitable guide? I know the Minister will have difficulties about anti-avoidance but he has not raised this yet and I do not want to throw him back on that defence.
If there is a transaction there will be a wealth tax in between in both cases. There will be a double tax affecting the same transaction, the passing of property in a certain case where the double tax will attach. Capital gains tax will almost certainly be payable in the inflationary situation we are in, which may continue with the decline in money values, and we will have the gift tax. It could happen that there would be a treble taxation, a capital gains tax, a gift tax or legacy duty and a wealth tax.
If we are moving that far Left, and there is a good deal of argument for it, we are moving very far Left. The move to the Left is getting out of control like in Italy and elsewhere.
So is the economy.
The Minister may be toying with his socialist philosophy here but I believe the horses are going to run away with him very quickly. Somebody remarked last night, and I repeated it, that this House was becoming an irrelevancy; that the power was passing from this House and from the Government. For this reason it is possible that we are wasting our time talking about this in the present economic situation. If it is the Minister's intention to do this on a socialist philosophy that is all right but I am taking it as a taxation measure. If it is a taxation measure and if we are still in the context of the post-French revolutionary socialism there is an inequity here. There is the loading of taxes on a particular quarter. In some cases it is not just a case of double taxation; it is a treble taxation. While I appreciate everything the Minister has said I am glad he did not stand on the technical point he could have stood on. I appreciate that he did not attempt to stand on it. I further see his difficulty with the reliefs under the capital acquisitions tax and the capital gains tax. It nevertheless remains true that the transaction involves persons. It is individuals who are involved in this, not corporate bodies. Persons in this category referred to by the Minister are now to be subjected to a peculiar type of penal taxation in the sense that it is all loaded up. I think we are going rather far here in infringement of principle. I would commend again to the Minister, if not in this Bill, when it comes to the other Bill, a very serious consideration of the points made by Deputy Colley. I said taxation. I might almost say quadruple taxation. There is, I should imagine, a taxing in most of these cases. On the capital acquisition side, there is and ad valorem stamp duty. The tax, therefore, on this transaction of buying and selling is not only a taxing of gains but a taxing of the whole transaction. We have been taxing the whole transaction for years. That is what stamp duty is.
Ad valorem stamp duty is just a convenient way of imposing a tax on commercial transactions according to the value of the transaction. Indeed in practice it very often boils down to a tax on the market value of the property because the tax is ad valorem. It is a tax that is imposed in quite a straightforward way by the simple expedient that you have to bring the document of title to the appropriate office, get it stamped and pay the fee, the fee being graded to the value of the transaction. That is what an ad valorem stamp means. Let us not miss the point when we talk about stamp duty. It is not like a postage stamp where you pay for the service. We buy a postage stamp and put it on a letter but we are really paying for the service of having the letter transmitted. A stamp on a deed or a stamp in regard to a transaction is not of the same nature. It is a tax, a tax pure and simple, graded to the value, and you cannot use your title in court without a further tax penalty if you do not pay the tax. There are some very nice indirect sanctions for it as the Minister, as a practising lawyer, must know.
Let us take a transaction coming under this Bill where what we are talking about is significant. There will be a tax which is called a stamp duty and then there will be capital gains tax. It appears now that there will be another tax levied on this as well if it is a transaction for gift which may avoid the stamp. One way of avoiding the stamp of course is gifts. When the Minister makes a distinction between the gift tax which will come under the other Bill and the type of transaction that is going to attract a capital gain, he must remember that if the gift tax is free of the stamp duty and gets relief the other is paying the duty. However, further detailed analysis would perhaps be out of order and I trust the Minister has got my point. I repeat that the wealth tax comes into it. These are all one sort of transaction. Would the Minister not say that there is some substance in the pleas from this side of the House that would, at the very least, require careful consideration when the other two Bills in this code are being considered?
It seems to me that the Minister ought to consider this question of double taxation liability— the capital gains tax and gift tax. I appreciate that in family situations the Minister has made exceptions up to a figure. I presume the Minister's object here is to prevent avoidance. It is important that people should not feel that there is an injustice being done, that the Commissioners are trying to tax all over the place wherever they can. I did not hear the Minister on this amendment but there is some validity in what Deputy de Valera has been saying.
I do not know if the Minister will be able to complete these three Bills —Capital Gains, Wealth and Inheritance, before the adjournment. It strikes me that it will create quite a difficult situation for people in many areas if one or two of these Bills is through and the other one is not. For example, the Death Duties Bill is still, I think, in operation subject to the Gifts Tax Bill being passed. I would like the Minister to indicate whether he can see a situation in which one or two of these Bills would be law and another one might not. If that were so it certainly would create a very confusing situation for very many people. I agree particularly with the points being put by Deputy de Valera on the question of the application of two taxes at the same time, and possibly even three taxes.
(Dublin Central): If we had these Bills in their proper sequence at least we would know where we stand. We on this side of the House know how the Bills should have been brought in. The Capital Acquisitions Tax Bill should have been the first Bill before the House and probably we could deal with the Capital Gains Tax Bill more effectively then. There was no necessity at all to introduce the Wealth Tax Bill at the time it was introduced. We will have plenty of time in the autumn.
It is quite obvious that the whole capital taxation package has been mismanaged as regards its presentation to the House. I see a lot of merit in Deputy Colley's amendment as regards the two types of taxation. The Minister has already stated that the other Bill is before the House. He is perfectly right in that, but whether we like it or not we are going to have a capital acquisitions tax, a gift tax. We have in this Bill a capital gains tax. We will have to look at our whole philosophy in regard to the distribution of wealth in the country. We are here dealing with a particular section of people when the thresholds are taken into consideration. We are dealing with people who have fairly substantial wealth. If we are talking about this type of people their assets will be subject to capital acquisition tax, gift tax and capital gains tax.
Situations can arise where parents may pass on substantial parts of their assets or all their assets to their sons. They could be in a considerable way in business and big employers. The son may have to sell, through illhealth or for some other reason. He certainly will be subject to capital acquisition tax but, if he has to sell outside the family circle, he will be subject to substantial capital gains tax. We could get a situation where it would be much better for the State for this type of property to transfer outside the family circle to a completely independent group. In that situation it would be more beneficial to the State that the property would pass to outsiders who had good knowledge of this type of business. We could arrive at a situation where, the person may be slow to sell because he was subject to capital acquisition tax and now, if he disposes of his property outside the family circle, he would certainly be subject to considerable capital gains tax. This is the type of situation we would want to watch very carefully, that we do not inhibit the build-up of the economy by this type of taxation.
If capital acquisition tax is effective over the £150,000 within the family circle and, the same assets could be subject to a capital gains, we may reach a situation where people will ask is it worth while generating any further wealth within the country? It is only by building up wealth within the State that we can hope to provide a good standard of living for the people generally. Only by building up this section of our economy can we hope to attain a proper social welfare system, an educational system and so on.
We should direct our attention in this House to the creation of wealth. By the creation of wealth we will create employment. Both here and in other countries I am afraid the attitudes are wrong. We can see what has happened in this country and in our neighbouring countries as a result of the same philosophy. We must consider as regards capital acquisition and capital gains whether bigger units are more economic in manufacturing and all the rest. Anyone in this country will only have to look at the car industry to know why cars are assembled much cheaper in England and other countries. We know the huge plants and the automation that has developed in this industry. I do not know if one would agree with the principle, but whether we like it or not, larger units can produce more cheaply. That is a basic principle nobody can contradict.
If our philosophy is that the State should take a substantial part of the wealth from this section of the community then the situation will evolve where everybody is a worker. That may not cure our economic situation. I do not believe it will. We must not try to break up big companies. When I talk about big companies, I do not mean companies with massive shareholders, but there are companies that have substantial wealth with an organising director and a few other shareholders who control the major part of it. We should not direct our attention towards breaking up that type of unit at all. If we are to survive in this economic world, this is the type of company that will survive. The three capital taxation Bills before the House would operate to the detriment of this type of company.
What can anyone spend in this world? Let him be a managing director owning £10 million. Is not the bigger part of it reinvested for the benefit of the State, for the health of the employees, to give them a good standard of living and by and large the benefit through taxation, direct and indirect, will come back to the Exchequer to finance social welfare benefits, education and health within the State.
It is on this basis that I will support Deputy Colley in this type of amendment. There is the case I have already mentioned where a son has acquired property from, say, his father. He will have to pay substantial capital acquisition and gift tax and if, through no fault of his own, he is not capable of carrying it on, he will have to dispose of his asset shortly afterwards. He will certainly be subject to capital gains tax. This can happen. The Minister should be very careful in the type of philosophy he is pursuing. What we want is to expand our industrial arm. We want also to expand our agricultural sector by more investment. That is what we should be doing at this time when the economy is at its weakest point in the history of the State. Penal type taxes should not be introduced at this time.
I would like the Minister seriously to consider Deputy Colley's amendment. I can see the Minister's point of view as regards avoidance but there is certainly a lot of substance in Deputy Colley's amendment, having regard to the sectors of people at whom the section is directed. They may not be large in numbers but they are of vital importance to the economy, that is what matters. They could be large employers, paying substantial taxes, naturally, on their company profits. We should ensure that we do not discourage this type of community, that we encourage more of them into the country to invest their money to build up our industries to generate more employment. That is what we should be at the moment. The approach has been negative here since Christmas, especially the approach to the economy. The Bill that has been before the House certainly has not helped it in any degree. My view is shared by several other people outside the House and inside it.
The amendment reads:
"and provided also that whenever a disposal inter vivos results in a liability both to Capital Gains Tax and to Gift Tax, only such one of those taxes as imposes the higher amount of tax shall be chargeable.”
The first point the Minister made in reply was that there is no such thing as a gift tax. May I refer to section 4 of the Capital Acquisitions Tax Bill the Second Stage of which has passed this House? Section 4 says
The capital acquisitions tax to be called gift tax and to be computed as hereinafter provided shall et cetera be charged, levied and paid.
In order to achieve what this amendment seeks to achieve and to achieve what the Government set out in its White Paper that they were going to do, it was necessary for me to draft an amendment which would refer to gift tax. The Minister, however, says there is no such thing as a gift tax because the Bill has not been passed by the House. I can only say that if the Minister says that he is adopting the standards and techniques of a threecard-trick man, and his three cards are the Capital Gains Tax Bill, the Capital Acquisitions Tax Bill and the Wealth Tax Bill and whenever it suits him he will juggle them around and say: "It is not in that, and it is in that, and is not in the other one." Now, if the Minister chooses to introduce a package of taxation which, he says, is to replace death duties, and if he chooses to do it in the form of three separate Bills, it is simply not good enough, in my opinion, for him to plead in this House that we cannot have any regard to any of the other Bills. The whole point of this amendment, and the whole point of the statement in the White Paper, was that both gift tax and capital gains would not be applied to the one transaction. That is what the Government said. The only reason the Minister gave for departing from that provision of the White Paper was that not to do so would provide a loophole for avoidance. It is of very considerable significance that in dealing with this amendment today the Minister did not rely on the avoidance argument at all because the amendment is so drafted as to ensure that it will not provide a loophole, that it will involve anybody who engages in a transaction that would be covered by this amendment in tax at the higher rate, and definitely at the higher rate; capital gains or gift tax, in relation to the particular transaction, that is the one that will have to be paid to the Exchequer, the one paying the higher amount of tax. So there is not any loophole for avoidance in this at all.
The Minister then, in substitution for that argument, as advanced with great vehemence at the Committee Stage, fell back on two other arguments: firstly, that one of these taxes is payable by the donor and the other by the donee. This, of course, is not something new. This is something the Government had in contemplation when they issued their White Paper; they were aware of this fact and they were prepared to live with it. There is no insuperable difficulty as far as the Minister is concerned in the fact that one tax is payable by one party and the other by another.
The Minister then referred to the high thresholds in the capital acquisitions tax and, indeed, the points made in that regard by Deputy de Valera and Deputy Fitzpatrick are quite relevant. I would, however, like to point out that in the case of transactions or gifts, even between some related persons, the thresholds provided in the Capital Acquisitions Tax Bill are quite low. We are not just talking about cases where the consideration is over £150,000; we are talking about cases that are much smaller than that too. But, in so far as we are talking about the large cases, the Minister has on a number of occasions told us about the terrible iniquity of the death duty system under Fianna Fáil whereby 55 per cent tax was payable. He did not mention, of course, that that was in cases where the estates were valued at more than £200,000. If the Minister were prepared to bleed so hard for cases above £200,000 it seems to me it is not open to him to talk about this benefiting only cases above £150,000. That would not be true. This involves cases much smaller than that, even in transactions between people who are related.
The real point of this amendment is one that was acknowledged by the Government in its White Paper, the inequity of applying both gift tax and capital gains tax to the one transaction. That was recognised by the Government in its White Paper and nothing the Minister has said since has taken away from that inequity. The only justification he has attempted to give that had any substance was that to apply this principle would give a loophole. This amendment has been so designed as to close the loophole. I cannot see why the Minister would not accept it if he is concerned to avoid inequity. The more one sees of the Minister's performance on a number of these matters the more one wonders whether he is really concerned with equity at all or whether he is not simply concerned to push through the measures as they have come up to him, in some case without regard to any of the consequences and, possibly, without consideration of or understanding of the consequences of what he is pushing through.
In my view this is a very clear example that the Government itself is on record as recognising the inequity that would be involved in applying both taxes. This amendment seeks to avoid that inequity and, at the same time, provides a method of closing the loophole of avoidance to which the Minister referred and provides the Exchequer with the maximum yield under whichever of the taxes is applied. Yet the Minister refuses to accept it. The refusal of the Minister to accept this amendment is indicative of how far he has gone even since the White Paper was produced. He has advanced no convincing reason whatever for departing from the White Paper once the loophole of avoidance he talked about has been closed. He has tacitly admitted it has been closed on this amendment because he did not rely on that argument today as he did before.
All of this to me suggests that, since the publication of the White Paper, the Minister has gone very far along the road of not caring about the inequity or the consequences of what he is doing in this legislation. That is unfortunate, not only for the Minister in the longer term, but unfortunate for this country. Sometimes there has to be inequity and one has to live with it. This is not such a case. The introduction of inequity into our system by the legislation we introduce is something that the Minister ought to be avoiding and, indeed, he ought to be ashamed of being responsible for introducing inequity deliberately when a method is suggested to him by which he does not have to do this and can still achieve his purposes. However, the Minister has chosen to take that line. I have no doubt that he is wrong and, in accordance with the provisions of the Government's White Paper on Capital Taxation he is wrong also. We on this side of the House, have done our part as far as we could to close the loopholes and still avoid the inequity.
The Minister refuses to accept that this should be done despite the Government's previous commitment on this specific point. That is his business. It is he and his colleagues who will have to account for this and the consequences of the other things in which they are engaging. We on this side of the House have done our part as far as we could. We cannot do any more if the Minister persists in an attitude of that kind.
I move amendment No. 9:
In page 12, line 7, to delete "the contract is made" and substitute "when any capital sum is received".
This matter was referred to at some length on Committee Stage. On 18th February, 1975, the Official Report shows at column 760 I said:
Would the Minister have another look at this because it seems to me that the provisions of subsection (3) are far more realistic than those of subsection 1 (a)? It might be advisable to apply the same principle to subsection (a) as is applied to subsection (3).
The Minister said he would certainly look at it. He went on to say that he had just seen a spider descending from the ceiling. I do not think that was intended to be relevant to this subsection. This section endeavours to set the time at which there is deemed to be a disposal and acquisition of an asset. The amendment I am moving seeks to determine that the date at which there is disposal and acquisition of an asset under a contract is the date on which any capital sum is received. Paragraph (a) of subsection (1) of this section provides that:
... under a contract, the time at which the disposal and acquisition is made is the time the contract is made, (and not, if different, the time at which the asset is conveyed or transferred) ...
Subsection (3) provides:
For the purposes of subparagraphs (i) to (ix) of section 8 (2) (a), the time of disposal shall be the time when any capital sum is received.
I pointed out that it seemed to me that provision was a far more realistic one than that in subsection (1) paragraph (a).
In the case of a contract it is quite conceivable that a situation could arise in which a contract is entered into and, according to this subsection, the date the contract is made is the date on which the acquisition and disposal takes place. Under another section of this Bill there is a provision that the capital gains tax due is assessed in respect of the financial year in respect of which the disposal and acquisition takes place. It is not only conceivable but by no means uncommon that a contract may be made but the actual transaction may not be completed and the consideration of the capital sum involved may not be received for 18 months, two years, or more afterwards. Consequently it seems to me that this provision in subsection (1) paragraph (a) is quite unreal and quite artificial. I can see no reason why we should have this unreal artificial provision in paragraph (a) as distinct from the realistic provision in subsection (3) which provides that the time of disposal shall be the time when the capital sum is received. That is what really counts.
The Minister advanced some theory on Committee Stage about people entering into a contract which was unconditional and, before the completion of the contract, disposing of their rights under the contract to somebody else and thereby making a capital gain. He seemed to imply that, by so doing, they would avoid liability for capital gains tax if, in fact, the provision were as recommended in this amendment. If that is the Minister's contention, I think he is mistaken. In such a case the person disposing of his interest in the contract will not actually make a capital gain until he receives the capital sum. He can have any transaction he likes on paper, on foot of contracts and disposal of his rights under contracts and sub-disposals, and so on, but, until he receives the capital sum he is not making a capital gain. In reality it seem to me that the question of people avoiding liability in this way does not arise.
There is also the factor that, under another section of the Bill, provision is made that liability for capital gains tax arises in the financial year in which the disposal occurs. Under this provision you can have a situation where a disposal is deemed to occur on a particular date but where the capital sum, and therefore the gain, is not received for a considerable time afterwards. It could be quite a long time. This seems to me to be a totally artificial conception which it is not necessary to apply for the purposes of subsection (3). But the Minister deems it essential to apply it for the purposes of subsection (1), particularly paragraph (a). Unless the Minister can show, in a more convincing fashion than he did on Committee Stage, that this artificial concept is necessary, he should accept this amendment which is far more realistic and in line with the provisions of subsection (3).
There is a very significant difference between subsection (1) and subsection (3). It is that subsection (1) deals with both disposal and acquisitions, whereas subsection (3) deals only with disposals. There are a number of practical problems which have to be looked at. If the amendment were accepted it would give rise to a number of difficulties. For instance, what would be the appropriate procedure where payment of a consideration was deliberately deferred to postpone payment of tax? How would one fix the time, in a case where the consideration is paid by instalments? There would also possibly, in fact almost inevitably, be conflict with the law of contract. There could also be a conflict between vendor and purchaser as to the time of disposal.
What is the conflict with the law of contract?
I shall come to that in a minute. Subsection (1) (a) corresponds to the legal position under a contract—that ownership commences at the time when the contract is made or at the time fixed on account of the contract. I am sure that, as a practitioner, Deputy Colley has advised purchasers of the risk they run in relation to property once the contract is signed; an interest is acquired from the moment of completion of contract. If the disposal were deemed to take place when the sale moneys are paid over, it could be argued that there was a conflict with the general law of contract. One could have the situation in which a purchaser might claim that he acquired the asset at the date of the contract, while the vendor might maintain that he had not disposed of the asset until he received the sale moneys. Clearly, the acquisition and disposal should occur at the one moment.
Would not the amendment cover that?
No, I cannot see that it would.
The amendment would make it when the money passed.
Yes, but that would be in conflict with the law of contract which——
There are a lot of these Bills in conflict with the law when one thinks of it.
No, we do not want to do any violence to well-established principles. We want to ensure, they are respected, and not have a conflict between the general law and tax law.
In addition to this type of inconsistency, to fix the time of disposal by reference to the time of payment could result in delay in collection of the tax by the device of deferring payment of the consideration. Clearly we have a duty to ensure that no device such as that would be made available.
He has not made a gain if he has got the money, has he?
He would have disposed of the asset. If a person disposes of an asset, he should ensure prudently that he gets the consideration. Of course that is the invariable practice that a person does not dispose of the asset until consideration is received. But we must guard against devices under which people would postpone receipt of consideration for tax avoidance purposes. I would remind the House again of the essential difference between paragraph (1) (a) and subsection (3). We deal with disposals and acquisitions in subsection (1) (a) but, in subsection (3), we are dealing with the case where moneys are received such as, say, under an insurance policy, compensation and the like, where an asset is not acquired by the person who pays the insurance or the compensation. But we must fix the date at which the disposal takes place and, in such case, the disposal is deemed to take place on the date on which the capital sum is received.
(Dublin Central): He might not have received the capital sum on that date.
Under subsection (3) we deal with the timing of the disposal of an asset in respect of which compensation is received and that is the date on which the capital sum is received. I cannot think of any fairer way of dealing with that situation.
That is correct.
All I have got to say is that, to some extent, in the current situation—with reference to the Minister's budget yesterday—I feel we are wasting our time talking about a lot of this. I find it very difficult. Perhaps it is a defeatist attitude, but I feel the horses are running away with us. Whether it is taxation or social policy is behind the Minister here, we shall soon have a different pattern. There will not be anybody in this category to be taxed.
The general standard of living of people who will not be caught by it will be well down. We have seen it all happen before. We will be moving to the longer wavelengths in the spectrum. We will be going down towards the longer wavelengths. Certainly we will be leaving the violet and the blue, we will be going in the opposite direction. It is with a certain feeling of "what is the use of talking about a lot of this now?" that I approach it. The Minister has done his share valiantly to shove us in this direction. I do not think he could pull up himself now. If he cannot, we cannot. However I suppose we might as well go through with the exercise, which is this: the Minister poses his argument on the basis that there may be tax evasion. My first question is how can there be tax evasion if it is tied to the passing of a capital sum? It does not say the whole capital sum, any capital sum. If the Minister has any doubt about a deposit, for that matter he could make a deposit a capital sum. There will be no capital gains until then. That seems to me, as Deputy Colley pointed out, to be a matter of principle. However I can see that the Minister could foresee that perhaps, for a temporary postponement, it might avoid the aggregation of tax liabilities in a particular year. Whether that would be serious I do not know. I can see that he may have a point there. But I will give him another point: does he think it will be beyond the ingenuity of lawyers and accountants to juggle more easily with a thing like a contract, a paper thing, than something that can be actually traced firmly through a bank, like the passage of money?
Is the Minister aware of what can be done with contracts? If I was advocating the leaving of loopholes I would be inclined to accept the Minister's draft. It would afford an interesting exercise in the law of contract and other matters because from the practical point of view what is going to matter is the passing of the sum of money. If a man has enough interest in the matter to postpone the passing of the money, if the parties have enough interest to postpone the paying and reception of a sum of money, they have plenty of interest in avoiding making the contract at all within the concept of the contract which the Minister for the moment is so anxious to uphold.
I wonder whether, from the point of view of tax avoidance or from the point of view of netting the revenue, the Minister may not be making a present to somebody in the very area that he wants to catch by the phrase he has here. The administrative mind does not always see something, with all the experience that the Revenue Commissioners and the rest have.
This is something new and it will take a long time to catch up on this whole code of taxation. I suggest the Minister should have another look at this matter. When the sum of money passes it is something that can be reasonably captured and is an external fact. "Contracts can come very near the thought of man that is untriable", as Coke said, "for the devil himself knoweth them not."
So much for the negative side but there is a positive element to this. It is sometimes desirable that there will be, in a social sense, a contract. I recollect some time ago in England there was a question of an industry closing down, indeed like we have at the moment here, thanks to the Minister, the Government and their policies, and naturally the workers in that industry wanted a rescue operation. Equally understandably, they were not able to command the resources immediately. Some persons said they were ready to come in, commercial entrepreneurs. There was an immediate coming together of the people who were directly affected, namely the people whose living depended on the industry. These people were willing to take a commercial risk in the matter and to strike a bargain with the workers concerned.
That was a situation which clearly demanded a contract. It would not be a nice mutual understanding with one of these devices that can be operated between individuals that can never be caught, that is if you do not want to pass the money. It would not have been sufficient in a case like that. It is just such a case that this provision would block whereas, if it was on allfours with the rest of the principles in the Bill where, as Deputy Colley rightly pointed out there is a capital gains, there is no gain or loss until the money passes, where it might be much wiser to adhere to that. In the long-term I suggest to the Minister that with these possibilities there might be a great deal more merit in Deputy Colley's amendment than he appears to appreciate.
As I say, on tax avoidance, yes, I can see the Minister's and his advisers' fears. The Minister is a lawyer and a number of us have had experience of law. This is a taxation measure and as such will be always interpreted strictly in favour of the taxpayer. Incidentally, when I was making the case in pari materia, this point was drummed into me as an excuse for suggesting that the three Bills were not in pari materia. I went on quietly to suggest—I think I am right—that that point may have validity from the point of view of the taxpayer but from the point of view of the Revenue Commissioners it may not. I wonder, if this is analysed carefully, if you will find—as you will find in a Bill of this kind anyway, which is really nobody's fault because it is impossible to plug every loophole in advance and to deal with it—substance in what the Minister is saying. On the other side of the fence there may be bigger and better opportunities for doing precisely the same thing within the formula the Minister proposes.
I submit to the Minister on this amendment that a capital gain is not made until you have got the money. I do not see how it could be otherwise. The Minister has referred to section 10 (3), which introduces the disposal aspect. That only relates, as the Minister said, to compensation, insurance, forfeiture and consideration and exploitation of assets.
A contract can be made at a particular date and perhaps a deposit paid on it but that deposit is not a capital gain. Capital gain cannot arise until the money has been received. In these days it is quite conceivable that there would be a considerable delay between the time a deposit is paid and the time the purchaser has managed to acquire the money to pay and the contract is completed. Indeed, there are a couple of cases pending in court at the moment arising out of difficulties experienced by different developers. It seems to me the way it is phrased at the moment in section 10, (1) (a), that the tax on a capital gain could be payable before the money side of the transaction has been completed. That is the case for this amendment. I think it is a reasonable case.
I should like to hear the Minister's views on how evasion could arise because the contract is a valid document but the asset does not pass until it has been disposed of and handed over to the purchaser. If my reading of subsection (1) (a) means that one would be liable for the capital gain before the asset has been transferred and the capital transaction wound up one could have situations where people who might not have any money at all may be called on to pay capital gains tax before they have received money.
(Dublin Central): I am not sure what this section means when it states that the time at which disposal and acquisition is made is the time the contract is made. Does that mean when one puts a deposit down or when the final sum is paid? We all know the normal transaction as regards auctions. A deposit is paid and reading that section it looks that it is at that time the contract is made. Perhaps I am wrong. The normal transaction to me in the final contract is when one goes to a solicitor, pays the final amount due and signs the contract with the person selling. That is when the final contract is made. We all know that a considerable time can elapse from the time of purchase to the time when the final sum passes over.
I have known several cases in this city where it took two to three months to make financial arrangements. In a case recently a man practically lost his deposit by virtue of the fact that he failed to find the necessary finance. Can the Minister tell me that when the final transaction is made and the money passes to the seller that is the time that subsection (1) of this section covers? I knew of a case within the past two years where a property was sold for £124,000. The person purchasing the property failed to find the necessary finances; all he could manage was £100,000.
The man selling that property drew up a contract that the remaining £24,000 could be paid over a threeyear period at £8,000 a year. How would that type of situation be dealt with under this section? Will there be a deferment of the capital gains of the £24,000 which was outstanding or will the seller be assessed on £124,000 even though he will not receive at least £8,000 of it for three years?
I am sure this could happen a lot in the future where financing is difficult. I can see the Revenue Commissioners' point of view that we must try to tie up the Bill to ensure that there is no avoidance, but we must also make sure that we protect the taxpayer. It would not take me a quarter of an hour to go to the premises concerned. I should like to hear the Minister's views on that type of case where there was deferred payments in the contract of the £24,000 for three years at £8,000 a year. I believe the disposal of that property should only come in for capital taxation on the £100,000 he received first, and there should be an apportionment of the capital gains on the remaining £24,000. I believe that the final date of contract is when the final sum is paid over not when a disposal is made. We all know that at auctions a deposit is paid and it is normally two or three months when the final transaction has passed over. It would be unfair to bring in a capital gains at that early date. The Minister should consider these points.
Section 44 would apply.
The Minister is right in saying that there is provision in this Bill for payment of the capital gains tax by instalments, in certain circumstances, where the consideration is payable by instalments. Of course, that is a good reason why he should not be advancing, as he did, the difficulties envisaged under this section if considerations were to be payable by instalments. It is possible to cover that situation in order to determine the time at which the transaction is deemed to take place. In other words, when there is a disposal and an acquisition, and, correspondingly, to provide for payment of the tax by instalments where appropriate.
The Minister said that this amendment if accepted would be in conflict with the law of contract and, indeed, displayed a tender regard for the law of contract and other laws to ensure that they were not in any way breached by the provisions of this Bill. I am sure he understood the hollowness of Deputy de Valera's laugh when he heard that one. With due deference to the Minister, I do not think he stated the position under the law of contract fully in what he said. He argued that under the law of contract the signing of a contract for the sale of an asset to be completed at a later date transferred the ownership in the asset. He argued that a purchaser of premises who signs a contract is advised to insure the premises pending completion of the contract. He is right in saying that he is so advised but the reason is that the purchaser or would-be purchaser has an interest in the property. He does not have the ownership. The ownership, as between the vendor and the would-be purchaser, is vested in the vendor with certain rights of the would-be purchaser until the transaction is completed; until, as the amendment says, a capital sum is received.
The Minister also argued that if this amendment were to be accepted one could have the vendor saying that the disposal did not take place until he received the capital sum and the purchaser saying that the disposal took place when the contract was signed or vice versa. In so far as one could have that argument at all one can have it under the section as drafted which determines one date and the amendment determines another date. What operates is what is in the law, what the section would say. There is no validity at all in that argument.
The significant thing said on this by the Minister was that you could have people, if you accepted the amendment, deliberately postponing payment of the capital sum, presumably in order to ensure that they received it in a year in which they could claim losses against it or something like that. The Minister, in order to get over that difficulty, is prepared apparently to contemplate with equanimity the kind of situation referred to by me and by Deputy Brugha where somebody genuinely in a transaction finds himself being saddled with capital gains tax in respect of a gain which has not made and which he may not make for another year or more. I do not know how the Minister feels such a thing justifiable. Of course, he may argue that the Revenue Commissioners would not attempt to collect the tax in such cases, but if that is so he is saying that the Revenue Commissioners would be endeavouring to say in all such cases: "This is a genuine transaction, this one is an attempt at avoidance. Therefore, we will collect the tax here and we will not collect it there." In order to do that they would have to know whether the man concerned was going to claim a lot of losses in that year or the next year. The whole thing is impossible. It seems to me that the Minister has not given adequate thought to the consequences of the provisions of subsection (1) paragraph (a), which will create not only injustices but uncertainty. What you are going to have is a situation in which, according to this subsection, there is a determination of the time at which a disposal took place and an acquisition took place in reference to the date of the contract followed by considerable uncertainty for a long period during which it cannot be said with any confidence that, in fact, a disposal or an acquisition has taken place as evidenced by the fact that the contract could break down altogether, because of some dispute or other.
The Minister may argue that if it breaks down the gain does not arise and, therefore, there is no question of tax being paid. But, nevertheless, according to this subsection in a situation where ultimately the contract breaks down and no transaction takes place, there is deemed to have been a disposal and acquisition of the assets on the day the contract was made. It seems that this concept is so artificial that it must lead to considerable difficulty. The only reason advanced for it is the one the Minister gave which by implication seems to mean that people could manoeuvre the date of receipt of the capital moneys in order to get it in a year in which they could have a smaller liability either because they had no other gains or because they had losses to set off against it. That is laudable enough as an ambition on the part of the Minister but it does not justify the creation of this totally artificial situation and, far more serious, the creation of a situation in which people are liable for capital gains tax on a gain which they have not made at all and which they may never make. According to this, the Revenue Commissioners can, in a particular year, assess a person on capital gains tax on the basis of a contract made and charge him again even though he has not received the money. I do not think there is any justification for that kind of result coming from any efforts at anti-avoidance. It is difficult to know how far people can succeed in trying this kind of anti-avoidance but if they did and got away with it that certainly is unsatisfactory. There is no justification for producing the kind of situation I have described where people can be made liable for capital gains tax on a gain they have not made and which ultimately they may never make and the Revenue Commissioners may have to refund the money.
The Minister may argue that this would not happen and that the Revenue Commissioners will only assess the tax when the money is actually received but that they will assess it in relation to the year in which they contract was made. Even if that were to be so, and the Bill does not say it, what the Bill says is that the liability arises in relation to the acquisition and disposal which, according to this subsection, occurs on the date of the contract.
If that happens in a particular financial year that is the year in which the liability for tax arises. I do not think it is open to argue that this will not happen because this is what the Bill says will happen. If this happens it cannot be said that the Revenue Commissioners will not do that. If they will not do it the Bill should say what they will do. What they should do is to have a degree of certainty by saying that when the capital sum was received that is the date on which the disposal and acquisition takes place. We all know that is actually the date on which it happens. That is the date which determines liability, and as regards instalments there is no great difficulty for the Minister even providing that in the event of payment by instalments —there are various possibilities but one obvious one is that the thing is deemed to take place in the year when the first instalment is paid. There are possible variations on that theme but there is no insuperable difficulty. Non-acceptance of this amendment will lead to uncertainty and in some cases to considerable injustice. We have drawn the Minister's attention to this on Committee Stage and again now. In my view he has not advanced one cogent reason for non-acceptance of this amendment.
Amendment negatived.
I move amendment No. 10.
In page 12, lines 19 and 20, to delete "(variations on appeal being disregard for this purpose)".
This matter was also referred to on Committee Stage. It seeks to delete words in brackets in paragraph (c) of subsection (1), section 10. The words in brackets are: "variations on appeal being disregarded for this purpose". This was referred to on Committee Stage on 18th February last, Official Report, column 749 where the Minister says:
I will look at the particular words in brackets and I will contact the Deputy to see what he considers to be necessary.
I do not know what exactly the Minister had in mind there but I took it from that that he intended to bring in some kind of amendment to deal with the situation, but he has not done so. It seemed from the discussion on Committee Stage that the Minister accepted that the words in brackets were going to create problems because this paragraph purports to determine the date on which an acquisition and disposal takes place in relation to the compulsory purchase of property. It says that that date will mean: "the time at which the compensation for the acquisition is agreed or otherwise determined" variations on appeal being discharged for this purpose or if earlier, the time the authority entered on the land in pursuance of their powers. The Minister accepted that the words in brackets were bound to create problems because this paragraph purports to determine the date on which an acquisition and disposal takes place in relation to the compulsory purchase of property. It says that that date will be:
the time at which the compensation for the acquisition is agreed or otherwise determined (variations on appeal being disregarded for this purpose) or if earlier the time when they acquired interest in the land in pursuance of their power.
I raised a question on the Committee Stage which was not very satisfactorily explained. Perhaps, if the Minister were to explain it now, it might obviate the necessity for the amendment I am putting forward. This is dealt with in column 747 of the Official Report for 18th February. I quote the question I asked:
Paragraph (c) of subsection 1 deals with the situation in the event of compulsory acquisition. Lines 19 and 20—they are of course in the earlier version of the Bill—carry the words in brackets, "variations on appeal being disregarded for this purpose". I want the Minister to clarify whether this subparagraph determines only the time of disposal. If there were variations on appeal in the amount of the compensation would these be taken into account in computing the gain or loss or, since the date of disposal is the date on which the compensation is agreed, and disregarding subsequent variations, is the gain based on the figure originally agreed?
In other words, if this is determining the date on which the disposal takes place and doing nothing else, one could understand the position, but does it follow from the words in brackets that if the disposal is deemed to take place on a date when the compensation is determined and then subsequently on appeal that figure for compensation is altered, does that altered figure affect the amount of the capital gains tax assessed and if it does is it deemed to happen on one day but the capital gains tax is to be assessed in relation to a figure fixed on another day?
