Recommendations Nos. 1 and 2 are cognate and should be taken together.
Capital Gains Tax (Amendment) Bill, 1978 [Certified Money Bill]: Committee and Final Stages.
Sections 1 and 2 agreed to.
SECTION 3.
I move recommendation No. 1:
In subsection (4), page 3, line 34, before the Table, after "incurred" to insert "or assumed to be incurred".
I do not have to say anything more about these amendments than to say that despite the obviously inexpert manner in which I have drafted them, it did strike me that they were the appropriate words to insert in section 3.
It is not considered necessary to amend subsection (4) in the manner suggested in the first recommendation because it is beyond doubt that the reference to expenditure in that subsection includes a reference to deemed expenditure. Accordingly, the amendment suggested in the second recommendation is also unnecessary.
Recommendation, by leave, withdrawn.
I move recommendation No. 2:
In the Table to subsection (4), page 3, line 34, to delete "incurred" and substitute "is incurred or assumed to be incurred".
I ask leave to withdraw this recommendation.
Recommendation, by leave, withdrawn.
Question proposed: "That section 3 stand part of the Bill."
I have no objection to this section. It is the first intervention in our tax code designed to remove the inflation tax. I think it is a little unhappy that the intervention is in relation to a capital gain and that the inflation tax is being maintained in relation to income tax. There is no indication whatever that the recommendations of the consultative committee of the accountancy bodies with regard to this which have been made for some considerable time now are going to be met.
That said, I would like to ask a question with regard to what the House may consider is the appropriateness of the index used and the appropriateness of the application of the index to every asset held by anybody, whether resident or not resident, whether an individual or a company, and whatever the nature of that asset may be, whether situate in the State or situate outside the State, whether invested in a manner thought to be desirable or not desirable, and how the Minister wishes to explain the curious and distorting effects of the application of the particular multiplier chosen to different assets. I saw a paper which I have read and from which I derived considerable understanding of this Bill, which had a curious phrase in it with regard to the Stock Exchange, "the security and price rise have been outstripped by inflation". What that means, if in general true, is that in relation to the security market over the period of years in question there will not be any capital gains to be taxed, because the consumer price index is not the appropriate index to discover what is the real value. I do not know, I would be interested to have a view on this.
On the other hand we have the price of land which has gone as everyone knows, in this extraordinary way. The price of houses has risen also, altogether out of line. I do not know if the Minister can tell me where else indexation is applied and whether this is the type of index which is operated.
The only index that can be used is the consumer price index. Other than that, one would have to have separate indexes for all types of assets.
A pure matter of convenience.
It is the only suitable one in existence. It is generally accepted as the one that is the best to use.
May I ask one question in regard to my understanding of the section? Is it quite clear in the section that the pre-1974 cost is no longer at all relevant. It may have a relevance in subsection (3) and has it the effect that in certain circumstances an increasing loss would not become allowable, which would not be the position if this section did not apply it, which it does? I think I can see what the draftsmen are trying to do; they are trying to make the situation neutral as regards gains and losses, not to have an impact on the situation as of April 1974. Could you have a loss situation actually arising from the date of original acquisition up to, say, to-day's date which would be greater than the loss which will arise because the market value was fixed and a no gain no loss situation was fixed on the 6 April, 1974 and some of the loss was lopped off as a result of that? Somebody with a loss may have, as an effect of this, a reduction in the allowable loss.
The first point is that all market values are taken on the date mentioned but, as the Senator said, subsection (3) may apply. The purpose of this provision is to avoid the creation by the application of indexation of artificial losses.
With regard to real losses, does it prevent the availability of real losses?
Yes.
It could therefore in some cases have a significant effect on the tax liability of the particular taxpayer. Is there no way of saving that situation?
Depending on the circumstances.
Can the Minister not save that situation in any way?
Where there is a no gain, no loss situation.
The real loss is being cut down by the deemed acquisition of 6 April, 1974. I do not mind how the Minister does it, but it seems a hardship if you cannot. You have the situation where there is a very hefty Schedule with regard to wasting assets, for example which was debated at length in this House. I do not know if they might be wasting in particular circumstances at a rate which——
There should be the index loss.
I do not think indexation would help. However, I have made my point on that.
Question put and agreed to.
NEW SECTION.
I move recommendation No. 3:
Before section 4, to insert the following new section:
"4.—If a company so elects, section 3 shall not apply in relation to the disposal of an asset and the provisions of paragraph 18 of Part II of Schedule 1 to the Principal Act shall apply thereto as if Part II of the Schedule had not been repealed by this Act."
I want to apologise for the manner in which that recommendation has been drafted because I think there would be a number of consequential amendments to the Bill requisite if it were acceptable to the Minister. In particular, section 14 of the existing Bill would require to be amended to take care of that recommendation. Section 14 of this Bill reads:
Section 132(2) of the Corporation Tax Act, 1976, is hereby amended by the substitution of "Section 3 of the Capital Gains Tax (Amendment) Act, 1978," for "Part II of Schedule 1 to the Capital Gains Tax Act, 1975," and the said section 132 (2), as so amended, is set out in the Table to this section.
and would have to get similar treatment.
The effect of not having this election may be to have a company paying, in certain circumstances, tax on a higher gain than would be available if time apportionment were still preserved. Despite the fact that in general the existence of time apportionment tends to spread the taxable gain over the time and therefore within the then taxable period. But there are circumstances in which this could be, and I cannot see that there is a great inconvenience or a great difficulty in giving a company the election to continue to be treated, admittedly at the new rate of tax but on the basis on which they have been treated up to date.
Time apportionment is now being repealed in Schedule 2 to this Bill because it does not fit into the system of indexation which requires that relief be given in respect of the inflation as measured by the consumer price index that has occurred since 6 April 1974 only. It is considered that the proposed recommendation could not be justified. The fact that market value as of 6 April 1974 is the starting point in the computation of the gain ensures that no more than the gain from that date, as reduced for inflation, is taken in the computation of the amount to be charged. This appears to be fair and there would seem to be no justification for making any exceptions for cases where fortuitously, time apportionment by reason of its lack of precision conferred a benefit.
There is nothing imprecise about time apportionment. It is a very precise measurement once you know the date of acquisition and the length of time. The fact of the matter is that on time apportionment there could be a gain which will be less than the gain which will accrue on a deemed acquisition on 5 April 1974 and companies can have so provided in their arrangements. I take it we can provide against the fortuitous by observing the possibility of its happening. If it does not happen often, it is not going to create much difficulty. I am not impressed by that. I would rather press this recommendation on the Minister.
If I could give the Senator an example of the position. Take, for example, an asset which cost on 6 April 1960 £2,000, the market value on 6 April 1974 becomes £5,000, and the asset is sold in 6 April 1978 for £20,000. The chargeable gain as computed under this Bill is worked out on the basis of the proceeds of the sale, £20,000, index cost at £5,000 multiplied by 1.815, becomes £9,075. Therefore, the chargeable gain becomes £10,925. The chargeable gain under the proposed recommendation, that is, on the basis of time apportionment is as follows: the overall gain is £20,000 minus the cost of £2,000, which equals £18,000. Therefore the chargeable proportion is four-eighteenths of £18,400, that is £4,000. This would mean that a substantial portion of the gain which accrued after 6 April 1974 would escape taxation.
And is precisely the existing law, so that that company will be paying extra taxation because of this, and under a Bill which it was intended to be beneficial to enterprise is not to get the benefit of that stimulus. That company's profits presumably will be applied and used in its business and it has been operating its business on the basis that time apportionment was the rule. The Minister's example is even more striking than the example I had myself.
Under the 1975 Act there was provision in paragraph 18 of Schedule 1 for computing the amount of the gain which arose after 5 April 1974, by assuming that the gain had grown at a uniform rate from nothing at the beginning of the period of ownership to its full amount at the time of the disposal and apportioning the whole gain on a time basis so as to determine the amount which had accrued after 5 April 1974. Time apportionment, as this was called, was at best a rough-and-ready method of calculating the gain from 6 April 1974 and was introduced mainly for administrative convenience so as to obviate as far as possible, especially in the early days of the capital gains tax, the necessity for valuations as at 6 April 1974. It happened with time apportionment where the rate of growth gain had been greater after 6 April 1974 than before that date, that some of the gain which arose after 6 April 1974 was in apportionment, attributed to the period before the 6 April 1974, and consequently escaped taxation. The amendment proposed in the recommendation would in effect retain the benefits for the taxpayer of the defects of the time apportionment system. It is not immediately clear why the proposal relates to companies only as of course time apportionment applied to all taxpayers, save in relation to certain assets.
For the very clear and simple reason that the Minister must know in giving me that reply that companies are excluded from the tapering relief provision in the next section, that is the very simple answer to that question. There is not much point in my pressing the recommendation much further.
Recommendation, by leave, withdrawn.
I move recommendation No. 4:
In page 5, after line 14, to add to the section the following new subsection:
"(9) In the case of an asset the time of acquisition of which cannot be established the beginning of the period over which a gain or a part of a gain is assumed to have grown shall be the 6th day of April, 1964."
Some people expressed doubt as to what was to be the position under this section where the date and cost of acquisition was not known. There was provision, as the Minister will know, for the ascertainment of this on the basis indicated in the recommendations the existing basis of the existing Act in fact. It seems to me that there is no problem with regard to the cost. If I am wrong in that I would like to be told I am wrong and that the critics are right, merely for my own information. I thought they were wrong. It seems to me that the deemed acquisition in April 1974 replaces and gives us the cost of acquisition. That could be operated but for the time of acquisition, is that correct?
That is correct.
I thought the position would be that the person claiming relief had simply failed to establish an entitlement to the relief, if he could not establish the period for which he held it. If that is the Revenue position, it is an understandable one, but these may be considered practicable——
I am sure the Revenue people would be very reasonable.
We always hear that in this House about any single point one ever makes about a section in a Revenue Bill: one is told that the Revenue will be reasonable. I am thinking of that dreadful day when the Revenue might not be all that reasonable.
It has not arisen yet.
There is a credibility gap there.
Would the Minister care to comment on these recommendations?
It is not appropriate in the context of tapered rates of tax and the cut off point after 21 years ownership that a period of ownership should be decided in such an arbitrary manner as suggested. For example, a person might be able to prove that he owned the asset for over 21 years but might not be able to state the exact date, or even the year in which he acquired it. He would be treated however under this recommendation as owning it for 14 years only, if he were now to dispose of it, and its disposal would give rise to a chargeable gain, even though the asset was held for at least 21 years and should under section 4(2) no longer be a chargeable asset. The proposed amendment could therefore operate to the disadvantage of the taxpayer.
In view of the new provisions in sections 6 and 7 in relation to assets acquired on death, there should be little difficulty in practice in ascertaining the date of acquisition of an asset. Formerly assets acquired on a death, and later disposed of, were treated as if the successor had acquired them when the deceased acquired them. The successor might have no knowledge of deceased's affairs, and thus might have no way of establishing the deceased's period of ownership. This difficulty no longer arises in such cases because the period of ownership of the successor will commence at the date of the deceased's death, save in the case of a surviving spouse. A surviving spouse will normally be in a position to say when the other spouse acquired the asset, as effectively it will not be necessary to look back more than 21 years from the date of disposal to which section 4 applies.
Recommendation, by leave, withdrawn.
Question proposed: "That section 4 stand part of the Bill."
I expressed considerable unhappiness with regard to this in my Second Reading speech and in secret session in Seanad, as we continue on most of these Finance Bills, I can take up the point. Would the Minister answer one question with regard to this relief because it is a relieving section of some importance? How much will this relief cost? When the Minister for Finance, who has shown an intimidating consistency, said in his budget speech with regard to this matter of the capital gains tax that it would not cost anything because of the basis of capital gains tax, that is, that it would not affect the Exchequer returns in the present year, obviously that was correct. But we are approaching the Minister's second budget and he must be concerned to measure the cost of all relief. This relief which is going to benefit particularly the better off members of our society, is going to cost the Exchequer a sum of money which in some degree must be capable of estimation in the coming year.
In regard to this indexation proposal the Inland Revenue in the UK, in a document which they issued on 5 October 1977, described the proposal for this relief and for indexation as involving substantial extra work both for officials and taxpayers. This Bill cut out the only serious provision in the code for relief of the man with the small income—what they call the half income rule. That has gone here and in the UK too. When they got rid of it in the UK they substituted reliefs for exemptions up to a gain of £9,500 applicable to everyone.
The Minister to the Chancellor of the Exchequer said that the British Treasury could not afford what the Irish Government had decided the Irish Exchequer could afford in giving this relief, a relief which they will enjoy irrespective of their income. What is this cost estimated to be?
I will give exact figures. In 1978 there was no change in existing legislation affecting the yield of £3½ million for this year.
There is no change for this year?
The yield would become, in 1979, £4.8 million with no change and the cost of the new measures would be £1.3 million.
Is the Minister saying the total receipts from capital gains tax are £3.5 million?
Right—£3.5 million in 1978, and £4.8 million in 1979 estimated. That is without the relief. The relief in 1979 is estimated to cost £1.3 million and the total relief estimated for 1980 would be £4.5 million. There is no separate breakdown.
The cost of the generality of the reliefs in the Bill, not broken down to this section, is £1.3 million estimated for next year, rising to a relief of £4.5 million. This Bill is not altogether relief. For example, the relief to the small man is gone. Therefore, there is some benefit to the Exchequer from that. We have been given an instance by the Minister where companies will be paying more tax. What would be the total estimated intake from capital gains tax?
£1.6 million in 1980 and £3.5 million in 1979.
We are going to get an intake next year of £3.5 million, involving a relief of £1.3 million and an intake the following year of £1.6 million, involving a relief of £4.4 million?
Right.
Contemplating a two-year period, we will be giving away 80 per cent of the tax collected from capital gains tax. We are borrowing to replace it. Are we going to raise some other taxes, or are we going to cut some services?
That is a matter for the Government in the context of the budget.
Yes, but I think my proposition is impeccable. We are taxing, cutting services or borrowing. We are doing one of those three.
Let us look at the relief contained in this. I appreciate that the Minister is not able to give a breakdown as between the main other relief, the indexation relief which is removal of an inflation tax, to which I do not object and which, in fact, I welcome. The others are smallish. The relief in relation to death is certainly not going to affect the receipts in a short period because death was not a chargeable event anyhow.
There were circumstances under the old code whereby tax was collected after death by sales, personal representatives and so on. This relief does not affect individual foreign investors unless they are resident or ordinarily resident. They will pay the same both before and after the relief is taken off. It does not assist companies, and, incidentally, if I am reading a later section correctly, it does assist policy holders in insurance companies. It applies equally to foreign investment as to domestic investment. Therefore, it does not encourage home investment. It in no way affects that decision. It applies to people who speculate in property in a situation other than the situation specified in subsection (3). If the speculators in question can hold on to the property which they acquire.
They are specifically excluded.
If I read subsection (3) correctly it only applies to a situation where one has land with market value in excess of its use value, which is not the type of property I am talking about, which has risen in price in the city of Dublin by 30 per cent in the last six months. It favours the man who can freeze up his assets, who can afford to dispose of his assets so that he does not have to call on them to educate his children and does not have to call on them for some pressing need.
I do not think it is possible to debate the introduction of this relief without looking at the removal of the relief to small taxpayers. Would it be the wish of the House if we could take into this debate, because it takes in most of what I have to say—I am sure you would all like to get that done quickly—the proposed insertion of the new section before section 5? Is it possible to have the debate on that at the same time, because I do not want to be repeating myself any more than is necessary?
An Leas-Chathaoirleach
If the House is agreeable we can debate both together providing there is not another debate when the recommendation is moved.
I will not contribute. Is the Minister happy to have it done that way?
Yes.
I am not tied to what was in the old code which is what they call the half-income rule, that is to say one was charged on £2,500 of the first £5,000 and the excess over that up to £5,000 added to the income of the individual taxpayer; he has had that option. That is gone but I am not tied to that. Neither am I tied to the British replacement, which they say is infinitely cheaper to the British Treasury thus is, of having exemptions—we have an exemption of £500—all the way up with breaks at different points. I am in favour of a system which is like the one operated in America where capital accruals are treated as what is loosely called accruals to economic power which, of course, they are. Originally, capital gains were treated as income. They had tapering relief for a while but there is a clear distinction between short-term gains which are treated as income and long-term gains which are treated at a lower rate than the income tax charge. There is a lot of debate internationally about this as to whether it should be one-half or one-third, but nobody seriously argues that capital gains should be taxed at the same rate as income tax and I do not propose it.
My idea, poorly expressed, no doubt, assisted largely by revenue language in the drafting also, is that the income taxpayer should be able to get his tax gains in at half his top rate. I may be told that that is a costly thing; I do not know—the British say otherwise with regard to their scheme and this seems to me easier. It has all the advantage of removing the grievance that is felt by people who see others able to realise capital gains out of assets that have qualified for exemption. All assets that are being held at this moment since 1957 by anybody in this society are exempt from capital gains tax held by the same person. That provides all these people with a source of cash giving rise to no tax if the asset of course is a realisable asset. That obviously is a point. It gets rid of a real feeling of unfairness. They can have access to spendable cash without giving rise to a tax whereas the man dependant on his income is not in that position.
The Senator mentioned the question of wealthy speculators being in a position to lock up assets. Speculation as a whole must be looked at with reference to the period of ownership. The longer the period of ownership the less the likelihood of speculation. I would like to know how the Senator would suggest that speculation could be defined or how he would define speculation?
Use investors.
The amendment proposed in the recommendation would substantially restore the effect of section 6 of the 1975 Act which is being repealed in Schedule 2 to this Bill. Broadly speaking, section 6 provides an alternative basis of charge whereby regard was had to an individual's income tax situation when determining his capital gains tax liability. The recommendation, as drafted, would create some anomalies. Where, for example, a taxpayer had very little income so that "the rate applicable to the highest part" of his income—the quotation is from subsection 2 of the proposed recommendation—was nil then his chargeable gains, however great they might be, would be charged at half that rate. That is nil, so that no tax would be payable. This could hardly have been the Senator's intention. The repeal of section 6 of the 1975 Act was fully debated in the Dáil on an Opposition amendment.
The Bill contains very substantial reliefs for the individual who makes a capital gain. His chargeable gain is reduced as a result of indexation and that reduced gain may then, assuming the conditions set out in section 4 are satisfied, be charged at a rate as low as zero after 21 years' ownership. These reliefs add to the cost of administration of the tax. Any linking of the capital gains tax liability to the taxpayer's income tax position would create complications which would further increase the cost of administration, with little or no benefit to the vast majority of taxpayers. The number of taxpayers who would benefit, having regard to the introduction of indexation and tapering rates, would inevitably be very small and the cost of administration would be disproportionately increased. In addition, it would not be beyond the ingenuity of a taxpayer to so arrange his affairs that his income for tax purposes in a year in which he expected to realise a substantial capital gain would, after relief for interest, accelerated capital allowances and stock relief, be very low or nonexistent, thus ensuring that the gain would escape or virtually escape tax. The old half-income rule in section 6 cost the revenue virtually nothing in tax. There were very few cases who benefited from it. It was an expensive relief to administer. The repeal of it will save practically nothing in tax but will save administrative costs. The number of people who actually got the benefit of the half-income rule to date is estimated to be less then 25 people in a period of three years.
I know 12½ per cent of them. I could, of course, have made the Minister's speech for him in reply to my old draft. The draft was only an idea and, obviously, would need cooperation to deal with the contingencies that the Minister has drawn attention to. Am I right in thinking and it seems to me to be very odd, that looking at paragraph 7 and 8 of the First Schedule, the position is that somebody who has got himself into the position that he has made a taxable gain of 30 per cent is not within the relief?
I would prefer to deal with that when we come to the paragraph in the Schedule, rather than going over and back through it.
Question put and agreed to.
SECTION 5.
Recommendation No. 5 not moved.
Question proposed: "That section 5 stand part of the Bill."
There is provision for replacement assets in the existing Act without classes. In this case there is provision for replacement assets with classes. I am not clear about it. If one was carrying on a trade which involved plant or machinery and land and buildings, good will and so on, and are disposed of that to get new assets they must be of that kind of assets for the relief to be available. It is a sort of roll-over in this situation. What do the words at the beginning of Class 1 (B) mean: "except where the trade is a trade of dealing in or developing land"? Does that mean that if somebody who is in the trade of dealing in or developing land or providing services for the occupier of land has his assets compulsorily acquired, he cannot replace them with assets of like kind? I am not wishing to do anything other than understanding what is in the section.
Class 1 comprises the capital assets of a trade, for example, plant or machinery, land and buildings and goodwill. In this context farming land in the State is a trade. It is not necessary that the orginal assets and the replacement assets be in the same subdivision A, B or C all in Class 1. It is sufficient that they are both within Class 1. For example, if the proceeds of the disposal of farmland are used to purchase farm machinery the relief would be due. Where a building is occupied and used for the purposes of a trade which consists of (a) dealing in or developing land or (b) providing services for the occupier of land in which the person carrying on the trade has an estate or interest it is not within Class 1. Such a building would in case (a) normally be included in stock in trade and the receipt from its disposal would be an income receipt of the trade. Accordingly, any gains arising would not be within the ambit of capital gains tax. Where, however, the trade is a trade of dealing in or developing land but the profit on the land occupied and used for the purpose of the trade, for instance a builder's yard and offices, would not fall into trading profits, such land would be within Class 1 and Class 1B the exception being in relation to a trade of providing services for the occupier of land in which the person carrying on the trade has an estate or interest. For example, the owner of an office block who provides to occupiers services such as cleaning, lighting, heating, caretaking and so on. Technically, the provision of such services is the carrying on of a trade, but the reality is that the income is from the letting of the building. The building would therefore come within Class 2 and is excluded from Class 1.
That is most helpful. I am grateful to the Minister for that. I had not understood that and he has made it very clear. With regard to Class 2, what does one do with a dwelling-housing situation? If I understand section 25, it depends on continued occupation, and does this mean that one cannot put one's money into a dwelling-house?
Class 2 comprises land and buildings not used for the purposes of a trade but it excludes a dwelling-house which is used as a principal private residence by the person making the proposal. The gain arising on the disposal of a principal private residence is exempted under section 25 of the 1975 Act and such property has, therefore, been excluded. If, for example, a let house were compulsorily acquired and the proceeds used to purchase a principal private residence the relief would not be due.
Thank you very much. Another question will mean that I can clear up a recommendation which is a bit of a cod at the end. Do the words, "the original assets and the replacement assets shall be treated as the same assets acquired as the original assets were acquired" mean that the tapering relief under section 4, and the indexation under section 3, which was annexed to the original assets, carries forward to the new assets through this language?
That is correct.
This is a different treatment of these matters of indexation and tapering relief to that which arises with regard to subsequent disposals of gifts which are relieved, or businesses by family gifts and disposal? I do not want to anticipate that section but I do not think there is similar treatment of the reinvestment there.
We will come to that point later.
Question put and agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
What is the situation in relation to a person who died in April 1975?
The time of death does not matter. It is the time of disposal that will matter.
And this includes development land as well, everything in other words? There is a revaluation in that case. The beneficiary under the will, if he does not dispose of it, would come in with an asset for the purposes of taxation valued at a different basis to the way his Daddy would have been taxed if he had sold it because he would have been taxed on the original cost or on the April 1974 cost as indexed from the date of his sale whereas his son will start with the market value at the date of his father's death which must be higher than the index cost. He is bound by that even if it is lower than the index cost. It is the market value which is the new start whether higher or lower.
That is the position.
Question put and agreed to.
Section 7 agreed to.
SECTION 8.
I move recommendation No. 6:
In page 7, line 15, after "child" to insert "or an illegitimate child".
I believe the Minister said I was wrong. Whatever it was I said was wrong I do not know but it is probable that everything I said was wrong. At any rate in regard to this point I referred to the treatment under the Income Tax Act, 1967 and to the special provisions for the taxation of settlors in respect of settled or transferred income. There are a lot of sections in Chapters 1 and 2 of that, sections 438 to 448 and they relate to a number of different cases. They are designed, in effect, to prevent people who are high taxpayers with money giving it over to their children and letting their children pay low tax on it blocking it off their higher rate. Obviously, this is the design of the whole thing. For the purposes of this part of the Income Tax Act an illegitimate child is deemed to be a child. The illegitimate child is one of the family. Under the income tax code there is an attempt to provide this kind of income in, hopefully, a genuine case and the disposer is treated as if an illegitimate child's income was his income, just as if it were a legitimate child. In one of the most recent Finance Acts there is a provision broadly to the effect that the child, wherever it is used should be an adopted child, a stepchild. I suggest in this case where a relief is being given to an old chap of 55 who gives over his property to his children that it should in jure as well be given to an illegitimate child as well as to a legitimate one.
I have a great deal of sympathy with the views Senator FitzGerald expressed on this matter. I am not sure, however, if it is the appropriate place in this Bill to bring in the particular clause he is suggesting. Moreover, if we are sincere and mean what we say when we talk about our total and absolute abhorrence of abortion, if we mean what we say about charity and so on, we are going to have to look very carefully at the entire law regarding illegitimacy and children in one-parent families. I support very much the spirit of the recommendation although I am doubtful as to whether it is appropriate in this Bill.
I do not propose to do anything at this stage. The matter will, however, be considered as sympathetically as possible between now and the introduction of next year's Finance Bill.
Recommendation, by leave, withdrawn.
I move recommendation No. 7:
In page 7, line 41, after "child" to insert ", otherwise than a disposal caused by the incapacity of the child".
I have not a great deal of feeling about that recommendation which was really pressed on me to put forward. The word, "incapacity", is not a very good one. The thought behind the thing is to relieve a situation where a child had to go to sell because the child could not carry on.
It is undesirable that an exemption from capital gains tax should depend on a taxpayer's incapacity because it is almost impossible to define satisfactorily the degree of incapacity which should exist before the taxpayer could qualify for exemption. Moreover, it would be very difficult to prevent avoidance by means of spurious claims particularly where, as in the present instance, large amounts of tax might be involved. However much one may sympathise with the intention behind the proposed amendment, I do not think it can be accepted.
Recommendation, by leave, withdrawn.
I move recommendation No. 8:
In page 7, between lines 51 and 52, to insert the following:
"(5) Subsection (4) shall not apply to a disposal giving rise to the relieving provisions of section 28 or of section 5 of the Capital Gains Tax (Amendment) Act, 1978."
I am satisfied that the relieving provisions of section 5 are already in the language of the section, as I said when dealing with that section. I suggest that the relieving provisions of section 28 should apply in the same way as they apply under section 5. I do not know why it is different. It is an odd situation because the relevant definitions are in section 26.
In relation to section 28 of the 1975 Act it provides that where an asset is disposed of and replaced the conditions in the section are satisfied, the gain on the disposal is to be treated as not accruing until the replacement assets are taken out of use. This is commonly called the roll-over relief. It is clear that relief under section 28 can be granted in respect of the gain which accrued during the child's own period of ownership. The fact that, in subsection 4(a) of the new section 27, the tax on the gain that had accrued up to the date of the parent's disposal is coupled with the tax on the gain which accrued during the child's period of ownership, will enable the Revenue Commissioners to administer the provisions of subsection 4 (a) of the new section 27 in the few cases that are likely to arise on the basis that the question of the clawback of the parent's relief will only arise when the replacement assets acquired by the child are finally taken out of use. It is considered therefore that an amendment of the new section 27 on the lines proposed in the recommendations to cater for roll-over relief is not necessary.
Recommendation by leave withdrawn.
Question proposed: "That section 8 stand part of the Bill."
It is a frightful question for someone who has to look after people in his surgery from time to time to be asking for further supplies of poison. It seems that you cannot collect interest until you have made your assessments. Say people have got all the tax for free from the revenue until the assessments are made if there are subsequent disposals, is that the position? I just want to understand it.
That is the position.
I suppose there is nothing the Minister can do about that kind of thing.
Question put and agreed to.
Section 9 agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
I do not understand section 10.
This section amends certain anti-avoidance provisions contained in section 39 of the 1975 Act which provides for exemption in respect of transfers of assets to the State, charities and certain national institutions. To prevent avoidance, that section provides that where such assets are transferred for no consideration or for a consideration less than the allowable expenses and they are subsequently disposed of there would be an occasion of charge. As, however, the State and most of the other recipient bodies, for example, local authorities, would be exempt from capital gains tax, the charge is directed mainly against charities set up for a limited period only with a view to obtaining the benefits of the section but with the real object of disposing of the transferred assets at a later date. In this event, the body concerned was to be charged to capital gains tax on its disposal of the asset on the whole gain computed by reference to the original cost of the asset to the person who had transferred it to that body, thus negativing the relief afforded under the section. With the introduction of indexation and tapering rates, this provision would not serve its purpose because the period during which the asset was owned by the exempt body would be included in the period of ownership. The amendment ensures that in the event of the disposal of the asset by the body concerned it would become liable to the capital gains tax which would, were it not for the relief under the section, have been chargeable on the original owner when he made the transfers to that body in addition to any libility on gains which may have accrued during its own period of ownership. The exemptions afforded to genuine charities under section 33 of the 1975 Act and to other bodies, such as local authorities, under section 23 of that Act are not being disturbed.
How can there be a charity that is not a genuine charity? There is a law about charities. I thought the Minister was saying that people were setting up a trust for a charity to cover a period when an asset was going to grow in value and the asset would then——
It could cease to be a charity.
——revert to the original donor. He would then collect the asset, the income on which was, in the meantime, enjoyed by the charity but enlarged in value during the period.
The charity will sell it when it has ceased to be a charity.
Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."
Is there any particular reason why fifteen-forty-fifths have to be used? Why these extraordinary proportions? I understand it all works out at 30 per cent, but why is it done that way?
This section amends the company tax legislation in two places to take account of the new basic rate of 30 per cent for capital gains tax provided for in section 2. Companies are charged to corporation tax in respect of their profits and, for this purpose, profits are defined as including chargeable gain. Notwithstanding the inclusion of the chargeable gains in profits, however, the application of the basic capital gains tax rate to chargeable gains is preserved by reducing the chargeable gains by a fraction before including them in profits. The new fraction by which chargeable gains are to be so reduced is fifteen-forty-fifths. Accordingly thirty-forty-fifths of a given chargeable gain multiplied by 45 over 100, the normal corporation tax rate is 45 per cent—is equivalent to a rate of 30 per cent—the basic capital gains tax rate on the whole gain.
I understand that.
Question put and agreed to.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."
I take it this is to provide for indexation?
Yes.
Question put and agreed to.
Sections 13, 14 and 15 agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."
Is it provided in this Bill that the relief of the £500 under section 16 (4) is not allowed where there are disposals of businesses or farms on retirement but apparently is allowed where there is a compulsory acquisition situation? If that was fixed up in the Finance Act, 1979, my day would be well spent.
There is no assessment.
There might be.
Assuming that there is full investment.
The same point is there with regard to disposal of a business or farm on retirement.
Question put and agreed to.
Sections 17 and 18 agreed to.
SCHEDULE I.
Question proposed: "That Schedule I be Schedule I to the Bill."
Am I correct in thinking that if there is a situation where somebody has gains which are chargeable at the 25.5 per cent rate and also gains which are chargeable at the 3 per cent rate and he has losses, and wherever they came from, must be applied, in giving him the most favourable treatment?
They can be set off to his best advantage.
If he had to sell out in a hurry?
Paragraph 7 applies.
The same applies with regard to the exemption. He can also pick out the taxation situation which is most favourable to him, which reinforces my criticism, as another type of taxpayer, of the relieving provisions of this Bill.
Question put and agreed to.
Schedule 2 agreed to.
Title agreed to.
Bill reported without recommendation.
Agreed to take remaining Stages today.
Bill received for final consideration.
Question proposed: "That the Bill be returned to the Dáil."
Before we pass from this Bill, which is very fair and reasonable and one on which a lot of mental energy has been expended, I would like to be clear on what kind of Bill it is. Is it a Bill to promote a greater degree of social equity through the tax code? Is it a Bill to increase employment in the public service or is it to raise revenue? From what I heard from the Minister it is not of much service in the last-mentioned category because the expected intake of revenue in 1980 is only £1.6 million. I assume when the cost of administration is taken off that it will hardly be worth more than £1 million. It is not that kind of Bill and I assume the Revenue Commissioners would not be interested in employing people in their offices or work of such little benefit to themselves. I am asking for confirmation that it is a Bill to promote a greater degree of social equity through the tax code.
The Senator is correct.
Question put and agreed to.