Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 20 Mar 1968

Vol. 64 No. 12

Death of Minister. - Finance (Miscellaneous Provisions) Bill, 1967 (Certified Money Bill): Committee and Final Stages.

Question proposed: "That section 1 stand part of the Bill".

There is just one small point which not alone intrigues me but is not understood by people who are more expert in this branch of law than I am. In section 1, for instance, one finds:

The following subsection is hereby substituted for section 156 (1) of the Income Tax Act, 1967,

whereas if you look at section 2 you find:

Section 181 of the Income Tax Act, 1967, is hereby amended. . .

It is a question of why you do not repeal subsection (1) and substitute it with this one. I cannot fully understand the reason. It is obviously a technical point.

In section 2 we are adding a subsection to an existing section which is not to be altered otherwise. In section 1 we are changing the format of the section. As the Senator knows from previous occasions the draftsman's way is peculiarly his own in these matters.

I do not follow it and there are others who do not follow it either. We are substituting this sub-section for subsection (1) of section 156. Is that section repealed altogether then or is it allowed to stand in operation for taxable purposes?

Sub-section (1) is repealed. We are substituting a new subsection for section 156 (1) of the Income Tax Act, 1967. That is the one which made provision for the appointment of a Special Commissioner and the new one makes provision for Appeal Commissioners.

Subsection (1) of section 156 is repealed by the whole of section 1.

There is another point which arises on section 3. It may create difficulties for the Minister. It seems to me that what we are now doing is, in effect, abolishing the position of Special Commissioner and creating instead a new office of Appeal Commissioner. I can see income tax assessments under appeal today before the Special Commissioner. If the Special Commissioners are abolished as from the passing of this Act what happens to the appeals which are before them? Is there any transitional provision in this Bill which says that appeals before the Special Commissioners on the date of the passing of this Act shall be dealt with by the Special Appeals Commissioners?

There is no transitional provision because there is no need for it. When a case has been heard by the existing Special Commissioners that is the end of it. If a case has not been heard by them it will fall to be heard by the new Appeal Commissioners.

That is what I am talking about. There are two situations that can arise. A case can have been heard by the Special Commissioners and judgment reserved. Once this Bill becomes law it lops off that. The case may have to be reheard because the man who heard it, the Special Commissioner, is no longer there.

The Special Commissioners do not usually reserve judgment in that way. They either hear cases or they do not. If they hear a case it is finished.

Do they give their decisions immediately?

In my experience they have always done so.

The Minister may have been more persuasive than others when he was appearing before them. There may have been cases adjourned.

They would be heard before the new Appeal Commissioners.

That might involve unnecessary stress for the unfortunate taxpayer.

When I say adjourned I do not mean that in the ordinary sense cases would be commenced and adjourned. Usually at the request of the taxpayer and perhaps occasionally at the request of the inspector of taxes, the hearing of the case might be adjourned. If it has not been heard by the present Special Commissioners, it will be heard by the incoming Appeal Commissioners. I do not think it will give rise to any difficulties.

It seems to me there should be some transitional provision to deal with such a situation. The Minister will be familiar with the Courts (Establishment and Constitution) Act, 1961, with which he was concerned at the time.

That was a completely different situation.

It was a transfer of power from one functionary to another. It is a matter which might cut both ways and I am afraid it will cut against the unfortunate taxpayers. Let us hope it will not cause too much disruption.

Question put and agreed to.
Section 2 agreed to.
Question proposed: "That section 3 stand part of the Bill".

In the new loose leaf statute which the Minister and the Revenue Commissioners have provided there are a number of statutory rules and orders which have been made. I find in it the Interpretation Act of 1937. We are amending a number of statutory rules and orders, among them being No. 48 of 29. Can the Minister tell us is there in the loose leaf book all the statutory instruments, to use a general term, gathered together and is there any way by which one can find out at a given time which statutory rules and orders and regulations made by the Revenue Commissioners or the Minister for Finance are in operation? Nobody except the civil servants who drafted them can at any stage tell anybody which statutory instruments are in operation. There is no way in which a lawyer or a solicitor can tell without checking first with the Department. There is no index to help find them. Where can we find them?

All the regulations and instruments now applicable to income tax are in the loose leaf version of the Income Tax Act, 1967, which has been published.

I cannot find some of those mentioned here. Perhaps I had not sufficient time. I accept what the Minister has said, of course.

I do not doubt the Minister's word. Is it not clear that if these orders are included in the new version of the Income Tax Act in this new handy form it should be possible to trace them through the index? I take this opportunity to remark that this has been a magnificent effort on the part of the officials responsible. The index is most valuable.

I could not get SRO 48 of 29. Maybe it is a statutory regulation. It starts off with No. 22 of 23 and goes off to No. 381 of 41. On the face of it it seems to have excluded No. 28 of 60.

I am assured that all the relevant extant regulations and instruments are here.

I will not delay the House. I am sure the Minister is correct. I am happy to know that we have now within the two covers of this volume all our rights and liabilities in relation to income tax and surtax.

One point I wish to raise is that we are by this Bill amending certain regulations. Is there any precedent for amending regulations made under an Act by a later Act?

Yes, there are several precedents.

It seems to be a very difficult situation. It might be very difficult in future when one is looking up regulations to think of going to look in the Act itself. The regulations in this matter are purely formal. It seems they should have been amended by other regulations.

All those regulations will now be reprinted and the reprinted regulations will be included in the loose leaf version of the Income Tax Act, 1967, and they will be readily available, as amended. This is a simpler way to do it. We amend the regulations and reprint the amended regulations in amended form and they are all available in the loose leaf volume.

I am questioning the matter of amending regulations by Act in the future. Taking a very general view of it, it will complicate things.

This legislation is much more composite in that it does the whole job together rather than adopting the Senator's suggestion which would mean doing a certain amount of the job in this Bill and the rest of it by amending regulations.

I agree that in this case they are only formal regulations.

Question put and agreed to.
Section 4 agreed to.
Question proposed: "That section 5 stand part of the Bill".

This section intrigues me somewhat. The section says that every person who is chargeable to income tax for any year of assessment and who, in relation to that year, has not been given a notice under section 169 or section 172 of the 1967 Act, shall give notice to the inspector of taxes that he is so chargeable. It may be all right to say that but there may be many people who would not know they were chargeable to tax. What happens in a case, say, where people have broken employment or have been transferred to new employment or come into new employment having returned from England? If they do not give notice to the inspector of taxes that they are chargeable, which is a difficult job at any time, what happens? Is such a person liable to penalties?

This is just a general obligation. It already exists in regard to corporation profits tax and surtax. Its effect is merely to place an obligation on anybody who is chargeable to give notice for the purposes of income tax. I think the existence of income tax is well known to most people.

I am sure it is.

On this liability, if a person takes up employment in the middle of an income tax year, that gives rise to difficulty. I am thinking of somebody, say, who has been sick for a period—not receiving any salary—and then, for half a year, may be in receipt of an income or of somebody who has been working in England or America and comes back here and is liable to income tax. They may think they are not liable because they were not here at the beginning of the income tax year. Of course, they could always find out. If they do not give notice and then, in the following year, they become liable to pay, will they be charged interest on that?

Most of the cases the Senator would be worried about in this regard would automatically be caught up in the PAYE machine.

That is so.

Question put and agreed to.
Question proposed: "That section 6 stand part of the Bill."

Can the Minister tell the House why this section was introduced? It seems to be putting the taxpayer in a somewhat less favourable position than he was in under the present code, under the 1967 Act.

Section 167 (1) of the Income Tax, 1967, provides:

The Revenue Commissioners shall in each year of assessment cause general notice to be given, requiring every person who, by this Act, is required to deliver any list, declaration or statement to make out and deliver such list, declaration or statement to the inspectors or to the said Revenue Commissioners within such time as shall be limited by such notice, not being less than twenty-one days from the giving thereof.

That section arises from a very old provision which had to deal with the posting of notices on church doors but it could give rise to some conflict with the other sections under which persons are required to make specific returns on income, lists of employees, and so on. Since the days of the old general notice, there are now all sorts of other people who have to give lists, to give specific lists, of dividends and interests accruing and lists of employees, and so on. It is suggested that there would possibly be a conflict between the various statutory requirements.

I quite sympathise with the idea of getting away from the posting of notices on church doors. We had the same thing in regard to rates, valuation of properties, and so on: we had this antediluvian method of posting notices on church doors, and so on. If we are to get rid of this system, ought we not take the further step forward into the age of electronics? Do we use television and radio sufficiently to tell people of their liabilities? I know they are mainly entertainment media.

I wish they were.

Through the kindness of the Leader of the House, we shall have an opportunity of dealing with that matter in a fortnight's time.

Sometimes the Leader of the House is very accommodating. I think some greater use might be made of those media—including, mind you, one piece of information of which people generally are not aware at the present time, namely, that, if you do not pay your income tax on the dot—as I have found to my cost—you pay interest on the outstanding arrears. I do not know how widely that fact is known. It is an innovation of recent standing. The Revenue Commissioners might make use of the television medium—not at peak hours but perhaps late at night— to tell us something about our rights and our liabilities.

Several efforts have been made to make the obligations and, indeed, the rights of the individual taxpayer more widely known. Perhaps we should do more in that regard. It is a subject which is under consideration by the Revenue authorities at the moment. It does not suit the Revenue Commissioners to have the sort of situation arise which the Senator talked about, namely, that persons are unaware of their obligations and, therefore, find themselves in arrears difficulties. It is just as much in the interests of the Revenue Commissioners as of the taxpayer that the people should know where they stand and, to the greatest extent possible, meet their commitments as they fall due. Any possible action we might take in that regard will be favourably considered.

Now that we have, indeed, got all the income tax laws between two covers and that so many people are paying income tax and so many people do not know the reliefs to which very often they are entitled, it might make the payment of income tax a good deal easier, and leave people with fewer grouses, if they got some rough idea that the Revenue Commissioners were not grasping all the time.

When I was in the Estate Duty Office some years ago I have a recollection that on numerous occasions we wrote out to people when we found, for instance, that property was sold for a lower amount than was thought to be the value by the Commissioner of Valuation, or when new debts came in, or when some circumstances arose which entitled the estate to a refund of income tax. We regularly wrote out to tell the personal representatives involved that they were entitled to a refund of income tax and advised them to put in correct affidavits. The Revenue Commissioners always knew the amount to which those people were entitled but the people had to ask for the refund. We did not go to the extent of sending out cheques with a covering note to people saying: "You overpaid to this extent".

We made a change in that regard. Speaking from recollection, the existing position is that the inspector of taxes must inform the individual taxpayer of his allowance. The inspector will now draw the attention of the taxpayer to his rights, to his claims and allowances. I might mention here also that on the customs side, we have recently produced a series of leaflets in an endeavour to take as much as possible of the terror out of the customs procedure in so far as the ordinary innocent citizen is concerned. We have set out in these leaflets what a person is entitled to bring in or to take out. We have tried to make matters more ordinary, more everyday, and to do precisely what the Senator is talking about, namely, to let people know whether they can take in, say, 200 cigarettes, a bottle of whiskey, or precisely what they can do.

I am very glad to hear that. A case was brought the whole way to the Supreme Court by the Revenue Commissioners. They said, in effect: "We know we charged you excessive duty to the extent of £19,000. We agree we charged too much". They also said: "We cannot pay it out to you". It went to the Supreme Court with the result that the £19,000 was paid out. The truth of the matter is—and the truth is very bitter, I suppose, in the case of the Revenue Commissioners, all of whom, I suppose, are very estimable gentlemen—that they have a bad public image. Now there is biblical authority for disliking taxgatherers—there is a biblical justification, at any rate, for disliking them.

On the other hand, there is the admonition to render to Caesar the things that are Caesar's.

Yes, but that is more a political act of obeisance than a handing over of the coin of the realm. The truth is that the Revenue Commissioners should realise that they have a bad public image and that the public distrusts all customs men, excise men, and inspectors of taxes, but unwarrantedly and unjustifiably so. The Estate Duty Office in my time never did down anybody, and, in fact, we did in that office what the Minister is saying is now being done on the income tax side. But something more than that is necessary. There should be an intensified and sustained effort on the part of the Revenue Commissioners to tell people at the relevant time, at Christmas and at holiday time, and always in relation to income tax, what they are entitled to get by way of reliefs and what they are entitled to do within the law.

I do not think anybody particularly wants to hear about income tax at Christmas time.

That is in relation to customs duties. Throughout the year if people got to know what they were entitled to, there would not be half of this thing of trying to put one over the Revenue Commissioners or the customs. However, I am glad that there is this action, and I hope that the Minister will call in the aid of the modern mass media which I think he is entitled to get free of charge from Telefís Éireann.

You would not call that interference?

No. He is entitled to that free of charge when it is stated that it has been issued on the authority or at the request of the Minister for Finance and I think he ought to make use of that. I am all for Ministers using their powers when they use them properly.

Question put and agreed to.
Sections 7 and 8 agreed to.
Question proposed: "That section 9 stand part of the Bill."

I gather from the somewhat sparse explanatory memorandum that this is merely applicable or intended to apply only to United States pensions. Is that so? Is it confined to certain pensions from the United States?

The section as originally drafted was to cover only certain specified United States pensions. Then it was represented to us that there were other pensions which were free of income tax in their countries of origin and that these should also be exempt, and we agreed with that line of argument and amended the original section in the Dáil. The Bill now, in fact, covers all pensions payable from abroad which are themselves exempt from income tax in their home countries of origin. The explanatory memorandum was issued with the Bill as originally introduced, and, therefore, does not cover the section in its present form.

I understand that the explanatory memorandum was prepared when the Bill was introduced. The situation, then, is that if a person has a social welfare pension, an old age pension, in England and retired here, if he is liable in respect of ordinary pension to which he might be entitled to here, the social welfare pension will continue to be tax free in this country notwithstanding that that brings the ordinary pension within the tax.

Any pension which would be free of income tax in the country from which it is paid if the recipient continued to live there will be free of Irish income tax in the hands of the recipient if he resides in this country.

It would not be aggregable with any other income?

No. We are making that particular income free of Irish income tax.

Question put and agreed to.
Sections 10 and 11 agreed to.
Question proposed: "That section 12 stand part of the Bill".

I do not know what class of person would be particularly interested in this section, but I do think that it is a bad principle of drafting particularly in a case like this where we are trying to bring the whole income tax law into as few statutes as possible, that we should say that "the scheduled territories" has the same meaning as it has in the Exchange Control Act of 1954. I abhor this business of having to interpret one Act by looking up another. If we are going to use a phrase like "the scheduled territories" we ought to put them into an appendix to the Bill. Since that cannot be done here because this Bill becomes law at midnight the Minister might consider that, in the explanatory memorandum that will ultimately go out with this Bill when it is passed, he should state what these scheduled territories are so that anybody reading this Act, which it will be when it is passed, with the explanatory memorandum would see immediately the position without having to refer to the 1954 Act.

The Senator has a point there. I agree with him that as far as possible we should not have legislation by reference, but, from memory, I think that these scheduled territories are quite a formidable list of places and I also think that they have been amended a few times. However, I would plead in mitigation of the offence in drafting committed here that this is a pretty technical business and not many people would be interested in this particular provision except lawyers who, I think, would be fairly well aware of what they were doing and where to look for the information they need.

Small wonder that people have to go to lawyers.

Question put and agreed to.
Sections 13 and 14 agreed to.
Question proposed: "That section 15 stand part of the Bill".

This seems to me to be a new section inserted in the Bill subsequent to its introduction in the Dáil. For the purpose of trying to understand sections 16 and 17, indeed the whole Part IV, I had to look up some of the case law. In the context I found a phrase which, of course, would be known to every lawyer from the judgement of Mr. Justice Kenny dealing with the construction of statutes, and I think it is very apposite to refer it to this particular section, because this section is the antithesis of what Mr. Justice Kenny had to say. I am quoting from the case of Richard D. Swaine, Inspector of Taxes, v "C" as reported in the Irish Reports 1964. Mr. Justice Kenny said: “It is not necessary to cite authority for the proposition that liability for tax must be imposed by plain words and that the courts are not to construe revenue legislation in a manner which will impose tax liability in order to avoid anomalies.” When you talk about imposing liability to tax by plain words certainly——

This does not impose liability to tax. It is a relieving section.

Yes it is. I shall deal with that in a minute. Section 15 is not by any means notable for plain words. It may be a relieving section, but the Minister must agree that this is a taxation statute and what I am saying now applies to some other sections of the Bill. It is quite impossible—when I say "quite impossible—whe possible" I mean just that—even for the most erudite lawyers to say what some of the sections both in this Bill and in other Finance Acts mean. There has been a great deal of debate and discussion on this particular measure by most eminent and erudite lawyers and they just do not know what it means. What they will tell you is: "We do not know until we see what the Revenue Commissioners have to say about it" and then it is whatever the Revenue Commissioners say a particular section means that is going to be the interpretation that will be put on it.

I think the Senator is being a bit harsh and unfair here. This is a concession which we are making in certain types of transaction and it would be a little rigorous to ask the person chargeable to tax to pay all the income tax at once because the nature of the transaction is such that he does not get all the cash at once. So we have said in effect: "You can pay the income tax over ten years." All section 15 does is to apply the same concession to corporation profits tax. There is not a really big word in the whole section.

No, but is it not remarkable that what the Minister has had to say is perfectly intelligible——

——but what is contained in section 15 is by no means intelligible? The Minister, of course, knows enough about all this to be able to explain it as lucidly as he has done and why in relation to this and in relation to section 17 it cannot be expressed in as clear a way as the Minister has expressed it beats me.

Maybe my explanation is a little facile.

I am taking the Minister at his word. Of course, there will be loopholes to be sealed off but still we could state in this section what is to be done and then if you want to make any qualification state that plainly but why it has to be wrapped up into one long complete sentence which I think should be taken as being read into the record so that people would know what it is about I cannot understand. It is all one long complex sentence and the number of double negatives in it would baffle anybody. It is sad that it should be on a relieving section that my complaint is based but it applies equally to other sections of the Bill.

An Leas-Chathaoirleach

Is this relieving section agreed?

With some relief.

On section 16, when we are dealing with development in relation to land, I suppose the Minister and his parliamentary draftsman had good reasons for not keeping the same definition in relation to "development" as is contained in the Local Government (Planning and Development) Act, 1963. It certainly is not the same definition as is contained in that Act and I do not know why that should be so. It would seem to me that "development" as set out and defined in the Planning and Development Act was the kind of thing which——

I think we would have run into difficulties there. There are two completely different purposes involved here. I would imagine that many of the things the Planning Act would wish to express as "development" we would specifically wish to exclude from tax. We are trying here to get at people who make profits from building and developing as a business and if we were to adopt the other definition we would be bringing in all sorts of people whom we wish to keep out.

Yes, I am quite happy with that. I can quite see now why that was not done. It had occurred to me that "development" in the other context was a fairly wide net and I have every desire to protect taxpayers and to see that they are not required to pay more than they ought to pay. There is no doubt that the liability which was sought to be imposed by the 1965 Act was agreed in principle but then it went too far in some ways. I am quite happy now the Minister has given that explanation that, in fact, you would be catching people who were not engaged in the business of developing land.

I have another point which might arise on this section. We are dealing with profits or gains from dealing in or developing land. One of the things that has occurred to me is that you now have a new situation under the Ground Rents Act where people are now getting the capitalised value of the ground rents which they created at a former time. Is that capitalised value of ground rents in any sense liable to tax or is it liable under this section?

Even though those ground rents would have been created at another time?

No. What a person would be really doing in that case is substituting one form of income for another and I do not see how any charge of income tax could arise on the transaction. Perhaps if somebody went out and bought ground rents and succeeded in making a profit out of capitalising them he could be shown to be carrying on a business or trading in ground rents and could possibly be caught then. But in the normal situation where a tenant bought out a ground rent and paid the capital sum it certainly would not come within the scope of these particular provisions.

That would be so in the case of a ground rent the capital value of which is fixed by reference to the most recent Government loan but that only applies to ground rents of private dwellings. If you are buying out a ground rent attached to a shop——

The buying out provisions apply to all ground rents. Originally the Commission's report suggested they should not apply to business premises but, in fact, the legislation does apply to all ground rents.

I had no views on this. It is merely a question of when this is being recast whether inadvertently or otherwise there can be a profit on it. If you take the insurance companies that have bought up ground rents, in many cases they are now selling them albeit compulsorily. In the case of the private residence that is fair enough because you are substituting one investment for another but they can get a good deal more in the case of business premises. They are not confined merely to the latest loan. That is not the standard.

It seems to me that if an insurance company, or any other business in the normal course of their commercial operations bought ground rents last year and the year before and are now selling them at a profit then that profit would fall to be considered as profit chargeable in accordance with ordinary income tax law.

(Longford): Could that not form some capital? It would occur to me that this would be more in the area of a capital gains rather than profit. If we are dealing with that we would need a capital gains tax.

If you or I, for instance, buy stocks and shares and sell them for a profit, that is capital and we are not chargeable to income tax on the profit because it is not income, it is capital. However, if I am engaged in the business of dealing in stocks and shares and I make any profit on the buying and selling of those stocks and shares that is a different matter. The same applies to insurance companies and other financial institutions. If they are in the business of buying ground rents and make profits, such profits in the normal way would be chargeable as income; but the individual who sells an isolated ground rent would be effecting a capital transaction. That would not be income and it would not be chargeable.

On the other hand, there is, in fact, possibly a loss to the Exchequer in regard to buying ground rents because a person receiving ground rents pays income tax.

Presumably the person who sold the ground rent will invest the proceeds. He would then become chargeable for income tax on the income from his investment just the same as he would for ground rent.

Surely it is not quite the same thing?

The principle is the same. The selling price is in line with the prevailing rate of interest. If the seller put the money in Government stock he would get the same return as he was getting in ground rent. He is merely substituting one form of taxable income for another.

(Longford): It still occurs to me that there is something irreconcilable in this. Suppose a man buys his ground rent and finds it is a profitable thing to buy that ground rent. Suppose it were possible for him to acquire the ground rent interest in the house he lived in and then having done that he acquired some adjoining ground rents in the same terrace or area and he invested that, this would hardly be regarded as a deal in the same way as a deal in stocks and shares. In the long run the people you are dealing with in stocks and shares are brokers who do this as a business. On the other hand you could have some undertakings like insurance companies dealing in a big way and they would be regarded as big business in buying ground rent interest from builders. The builders could then go out and go on to some other building operation. It seems to me that you have the two activities. The Minister is trying to suggest, and quite rightly, that the big operator who would be making profits should be liable to income tax. On the other hand I could envisage a situation where a smaller person having bought one, two or three ground rents would regard that as a profit and he would buy further ground rents. That would seem to me to be a capital gains.

The Senator seems to be confused. A person might buy out the ground rent of the house in which he lived. That means he is buying it with capital. In the same way this man could buy out other ground rents.

(Longford): He would have to borrow the money from the bank.

I do not want to purport to summarise the whole law of income tax applying to these circumstances. In general it is the isolated type of transaction which you hear about from time to time, such as a person buying a house to live in, leaving it in three or four years, selling it and making a profit. That is a capital transaction. There is also the person who goes out and buys houses and sells them. It is a matter of how many he has to buy and sell before it can be held that he is carrying on a trade. Generally speaking, if he does it three or four times the Revenue Commissioners regard him as carrying on a business.

(Longford): That is the point I wanted from the Minister, who is to decide?

Question put and agreed to.
Section 16 agreed to.
Question proposed: "That section 17 stand part of the Bill"

I suppose this is the section the Bill is about to a large extent and there is very little presumably I can say on it now that has not been said already. I think there is profound disquiet among lawyers and accountants and other persons about this particular section. There is no doubt it sets out and it seems to rectify what one might call two bad decisions from the point of revenue in the 1936 and the 1964 Acts. Indeed, one finds it difficult to understand how one of those decisions was reached. It is a matter now of deciding in this particular section whether your lease or sublease is subject to full interest. In addition, if I understand the purpose in this, it says that when a person acquires land it does not matter what intention you had when you acquired the land or if you had no intention of doing business or trying to deal in land you come within the provisions of this section. There are, I suppose, financial reasons based on precedents and it is because of the way our income tax law and taxation statutes are interpreted that this is so. However, there is criticism of the introduction of the phrase "a business" in this. It seems difficult to understand why this is used because even if a man is carrying on the business of grocer, draper, auctioneer or anything else for the purpose of income tax law there is no reference to me carrying on a business. If I am carrying on a trade the profits of my trade as a grocer, a candlestick maker or whatever else they are are accessible under tax. It would be better if the section had run: "where apart from this section, all or some of the activities of dealing in or developing land would not be activities held to be in the course of a trade," and forget altogether about the business. This word has never been used before and it seems to introduce confusion where confusion is not desirable and where it seems it would not be necessary. In the context of section 17, I should like to call the Minister's attention to section 23 where the section is drafted with the same intention and with the same purpose but the reference is to:

a person (hereafter in this section referred to as the vendor) carrying on a trade of dealing in or developing land (hereafter in this section referred to as the trade) disposes, in the course of the trade, of the full interest acquired by him . . . .

The question then is asked—is there a difference between a person who under section 17 is carrying on the business of dealing in or developing land which is then to be regarded as activities carried on in the course of a trade, and a person who in the case of section 23 is a person carrying on a trade taking in or developing land? What is the distinction between the two? Why is the offence of dealing in or developing land dealt with in section 17 (1)? What the whole of this Act seems to be about is to bring into charge private profits from carrying on the trade of dealing in or developing land. The Minister may be able to clarify that in the way he has thrown so much light on another matter earlier this afternoon.

I am not quite clear what is the Senator's difficulty. In section 17 we have given a great deal of thought to the manner in which this problem should be tackled. It is a difficult problem and we have come up with the solution which the Senator sees set out in section 17 (1). Really it gets down to the net issue that there must be two things involved. First of all, the transaction must be of a kind which would have been regarded as a trade if the man had disposed of his full interest, but is not so regarded because he did not, in fact, dispose of his full interest. The second is that he must have acquired the interest in the course of dealing in or developing land. These are the two requirements involved in section 17. It is very difficult indeed to think of any other word which you could use there in place of the word "business". I have tried to think of an alternative expression but I found it impossible to improve on the present wording.

Section 23 is concerned with a different matter. It is concerned with the case of a person who deals in building, presumably an office block or something of that nature, disposes of it but reserves the right to lease back. The Revenue Commissioners would place a certain monetary value on that right to lease back. The person in question would not be getting a cash payment out of that element of the transaction and we are saying that the tax attributable to that element of the transaction may be paid over ten years. Section 23 is not concerned with charging a person to tax. It merely provides that where a person effects this sort of transaction then he can pay the tax over ten years.

A machinery section?

Again, on that point I should like to say, despite the long consideration that has been given by the Minister and the Revenue Commissioners to this particular section, it may conceivably turn out that it does not work out, or that it will bring in more than is intended. I hope, and I am sure, the Minister will give the assurance that if it does bring in more than is intended when the Revenue Commissioners inspectors get to working it out and when it comes to applying the particular facts, if it brings in more than the type of person the Oireachtas wants to get at, the Minister will not hesitate to bring in legislation in the admirable way in which this legislation has been brought in to deal with difficulties and inequities that arose under the 1965 Act.

I have no hesitation in giving that assurance. I intend to stick at this in order to get it right even if it takes the next 20 years.

There is a further point and I wonder would the Minister or the Parliamentary draftsman give it consideration? Subsection (1) is one great complex of words and I am satisfied that it is within the competence of the Parliamentary draftsman to break the sentence up and make clear what we are trying to get at. The Minister could again explain what this section intends to do, and then if he wants to make sure he is not letting out too much or taking in too much, make provisos. As in section 15, to which I referred earlier, it may be difficult and I have no doubt it is difficult but I am not satisfied that it is impossible to make it clearer. An effort should be made to make these things somewhat more intelligible than they are. If the persons concerned make the effort I believe they will achieve a degree of clarity that will surprise themselves.

Question put and agreed to.
Question proposed: "That section 18 stand part of the Bill".

I wonder would the Minister be good enough to give us a little homily on what this is about. There is one thing in particular I want to find out—I do not think it arises strictly on this. As I understand the position, when a person leases property by way of sub-lease or otherwise and creates a rent if he is involved in the business, to use the language of section 17, of dealing in or developing land, he will pay income tax on the final and any other profits on that and he will also, if I understand the section, pay on the capitalised value of the ground rent.

More or less, but subject to the qualification that the market value of the rent will be taken into account in determining the profit from the overall transaction.

It will be aggregated. One can justify liability to tax on that basis but here is where I part company with the Minister if the law is still the same as the last time I had to look it up. Having paid on the capital value of the ground rent—that having been thrown into the credit side of the account—he then has to pay income tax on the ground rent beginning the first year thereafter. I have no sympathy with dealers or developers in land but as I said on the 1965 Act, I cannot understand why builders and developers will put up with a situation in which, having paid on the capitalised value of the ground rents which, worked out at 15 years on a ground rent of £20, means he has paid tax on £300, means that the first year thereafter, having already paid when he capitalised, is charged twice on the same income. I have no doubt that is charging twice on the same income. If you are to charge for the whole term of 450 years or 550 years as the case may be, and you are to get income out of that, that is an income liable to tax and should be liable to tax, but I cannot se the justification for capitalising the ground rent and paying income tax on that if the person has to pay in the course of aggregation of the profit on the transaction. I discussed this with a learned lawyer the other day and, immersed as he has been for years in income tax matters, he could not advance any justification for it. I cannot see any justification for it and I do not think it is fair to the developer to charge him on the capitalised value and then, the first year thereafter, without any remission for any period of ten or fifteen years, to charge him on the ground rent year in, year out.

As the Senator puts it, it is difficult. On the other hand, it is logical. Let us take a builder who creates ground rents. Let us take ten rents at £50 each. They represent an income of £500. For purposes of the transaction, we capitalise that £500, add it into the profit and loss account and determine the profit of the transaction. That is fair enough. At that point of time, the builder has an option open to him. If he sold the ground rents for cash, and got £4,000 for them and then invested that £4,000 in Government stocks he would have to pay income tax on the income from the investment. He may, however, choose not to do that but to leave his investment in ground rents.

A similar situation which worries many people is that as one goes through life earning income, one pays income tax on the income and with whatever one has left one buys investments and receives income from them and then one pays income tax on the income from such investments. A person might think that because he paid income tax on the original income, he should not have to pay income tax on the income arising from the investment of his surplus. That is not the law. The law provides that all income is taxable and it does not matter from what source one accummulated the capital to procure that income. If it is accepted that when a builder sells his ground rents and puts money into some form of investment the income from that investment should be taxable, then similarly the ground rents should also be taxable.

That sounds logical enough to listen to but if the builder does not choose to sell his ground rent then, of course, he will not invest in other securities and, therefore, will not have any income which will be taxable. I can see the analogy the Minister posed that when people invest savings they are taxed on the income coming out of the savings. That is the law. It must be so, because income tax, to use the words of a learned judge, is a tax on income. That is fair but if you are to accept that that is so here, the mistake made is not so much taxing the ground rent year in year out but in capitalising the ground rents.

That is easy to explain. The builder at that point of time has two options open to him. He can say: "I am leasing-off this land for a rent of £20 for the next 100 years," or "I will sell it outright for a capital sum of £500". You must capitalise the ground rents. The fact that the builder postponed taking the payment arising out of the transaction for 100 years is his business. The value of the transaction is the same whether he postponed it or not. One way or another you must take the capitalised value of the ground rents.

My conscience is getting a little easier now in the matter of getting the developers to pay tax Perhaps I have diverted the Minister from doing what I should have liked him to do—briefly to itemise what section 18 is designed to do.

Section 18 repeats the corresponding section in the 1965 Act. Again, it is a machinery section. Section 17 determines whether a particular transaction should be chargeable to tax. If it is so chargeable, section 18 comes into play and sets out the manner in which the profits from the transaction shall be measured. Stripped of its legal terminology, what it means is that acquisition and disposal of interests in land will be treated as purchases and sales of trading stocks. That is really what it purports to do. In the same way as a grocer buys and sells his particular products, the builder and developer in land will be simply regarded as buying and selling his product which, in effect, is land and buildings.

What I am anxious to find out is, when one is calculating the profits which the developer has in regard to any particular transaction, which are the items to be taken into account as expenditure and as profit.

First of all, we establish that he is carrying on a trade and we then ask how the profits are to be computed. Section 18 sets out how we are to determine what were the purchases and sales in the trade and, therefore, what profits the builder has made.

Can the Minister indicate—he may not be able to do it readily—how one will calculate? He refers to subsection (2) (c) (ii) to the market value of any rent reserved under the lease. Is there any particular formula that will be used in that case?

It will be a question of fact, of the market at the particular time, and so on.

Valuation by an auctioneer?

Valuation by reference to current conditions.

In relation to the capitalisation of ground rents, is there a particular factor that is used—15 years purchase, and so on?

No: the going rate at the time.

Question put and agreed to.
Question proposed: "That section 19 stand part of the Bill."

This concerns the transfer of interest between certain associated interests. In the last paragraph, subsection (2) provides:

A disposal by way of gift shall be regarded for the purposes of this subsection as being a disposal at a nominal price.

Will the nominal price be 1/-, £1?

It is not a question of putting a particular price on it, but merely of ensuring that a gift—for which no price is paid—is brought within the scope of the section.

There can be such different concepts of what a nominal price would be. Take for example, the auctioneer or the trader at a fair or on a Saturday afternoon saying that certain things are given for a nominal price, a nominal charge. One knows what nominal damages in the court are —a farthing, a penny or a shilling: sometimes they might go up to £1. The Minister says we ascertain what the current value would be and then something below that. It seems a bit unsatisfactory to say "at a nominal price". If one said "one-fifth, one-twentieth," and so on "of the current value," it might be more satisfactory. It is desirable to get some guide as to what will be in the mind of the Revenue Commissioners.

This is a case of the mechanics of drafting. If it were a gift, there would be no price. The purpose of the provision is to bring it within section 19 which speaks of the price at which the interest is disposed of. In order to bring a gift within that wording you have to create some price for it so that it shall be regarded as having been disposed of at a price even though it was a gift.

I appreciate that. Suppose a father transfers his property to his son, the father being engaged in the business of dealing in or transferring land. Suppose on the occasion of his son's marriage, he transfers property worth, say, £5,000 to £7,000, and that it is given in consideration of natural love and affection. Is this the kind of situation where the nominal price would come in?

Yes. Otherwise, if there were no question of a price, the gift would be outside the section. Really it is only a drafting device to bring it into sub-paragraph (2) (a).

Question put and agreed to.
Question proposed: "That section 20 stand part of the Bill".

This is just another anti-avoidance measure.

Question put and agreed to.
Question proposed: "That section 21 stand part of the Bill".

The rest of this part is to deal with various avoidance devices which have been concocted by clever lawyers and accountants.

Question put and agreed to.
Sections 22 to 27, inclusive, agreed to.
Question proposed: "That section 28 stand part of the Bill".

I think a Minister for Finance is never more human than when it comes to superannuation provisions. Just as a matter of information, are there many persons involved in this section or is it somebody who is already retired or is likely to in the future?

There is only one person—an existing Special Commissioner.

Question put and agreed to.
Question proposed: "That section 29 stand part of the Bill".

This brings me back to what I was dealing with earlier in section 1. The Minister says, and I have no reason to doubt him, that section 156 of the Income Tax Act, 1967, is repealed. One would expect to find a schedule containing a list of enactments repealed by this particular Bill as one often does in the statutes.

There are two separate procedures involved. You can say that all the subsections, and so on, set out in the Schedule to this Bill are hereby repealed or you can say "this new subsection is now substituted for subsection so-and-so in section so-and-so of the former Act". The latter procedure has been adopted in this Bill in relation to section 156 (1) of the Income Tax Act, 1967. If you substitute one section for another, surely you do not have to repeal it as well?

It may well be that may be the appropriate way in the case of a taxation statute because, even if you are amending, in a particular taxation year, for the future, people will still be liable under the old law to whatever was the liability for a particular income tax year. What I am trying to get at is this—and it is a practical difficulty—if one wants to find out what sections of the 1967 Income Tax Act were amended, one can find out straight away from looking at the Schedule here. One can see them. Also, in relation to many other statutes, if we want to find out what sections of the principal and other Acts have been repealed, we can find that information in the Schedule, too, and can get along quickly enough. Take the Index to the Statutes, prepared I think, by the Parliamentary draftsman's office. On occasion I have found that a particular section had been amended by having a new section substituted but it had not been picked up in the index because it was not among the repeals in the particular enactment. I called attention to that particular error in relation to the statute. This is why I think even substituting a section prospectively—even if it be necessary to have the old section there in order to keep it in being for the purpose of liability to tax and to recover under it, though I do not think it is necessary under the Interpretation Act—it would be desirable from the point of view of clarity in legislation to have all the sections that are amended or repealed where a new section or subsection is substituted put in a Schedule at the back. It could be very helpful. The other way is fraught with certain dangers for the person trying to interpret the law at any particular time.

Yes, there is some force in what the Senator is saying, but the substitution and amendment are really related to each other, whereas when you repeal something it is gone altogether. If you want to leave it there in an altered form you can do it by amendment, by the insertion of some words, or you can do so by saying "the following is substituted" for what is already there. Amendment and substitution are really different aspects of the same thing, and they are not appropriate to be included in a list of repeals in a Schedule to the Bill. I agree that a list somewhere of substitutions and amendments would be useful, but I would hope that the new loose leaf system for the Income Tax Act will help to make the whole position a great deal more clear in future for practitioners and others.

Question put and agreed to.
Schedule agreed to.
Title agreed to.
Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.