Land and Income Tax Amendment Act 1966 (budget proposals)

This commentary item was published in Public Information Bulletin Volume 23, June 1965.

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Land and Income Tax Amendment Act 1966 (budget proposals)

The Minister of Finance, Hon. HR Lake, included some tax proposals in his 1966 Budget. They will not have the force of law until validating legislation is passed.

Here are brief details.

Incentives Extended

The following incentives which would otherwise expire at 31 March 1967 are to be extended to 31 March 1968.

• The 150 per cent deduction for export market and tourist promotion expenditure.
• The special and initial depreciation allowances of 20 per cent.
• The deduction of "class B" farm development expenditure beyond the usual £400 limit.

Incentives Suspended

The 10 per cent investment allowances on plant and machinery have been held to be partly responsible for the present upsurge in imports. The Minister announced the suspension of the allowance but said that the Government will re-examine the position next year in the light of the balance of payments situation at that time.

There are two exceptions -

• The allowance will apply where a firm contract to purchase plant and machinery was entered into before 17 June 1966.
• The West Coast allowance which is to continue but at the reduced rate of 10 per cent.

Livestock Incentive

The Government and the Agricultural Production Council have collaborated on a scheme intended to provide a direct tax incentive related to increases in livestock. The scheme is expected to materially assist in meeting the long range targets set by the Agricultural Development Conference.

Briefly the main provisions of the scheme are

• Entry is optional.
• On entry a livestock base will be established. This will be the greater of the livestock numbers carried at the end of either of the two preceding accounting years.
• Subsequent increases over this base will be shown at a NIL standard value for tax purposes. Taxable income will be deferred to the extent of the difference between the NIL and the usual standard values of the increased livestock.
• When the farmer sells or otherwise disposes of the whole of his livestock, for instance on retirement or death, the full market value will become taxable income, subject to the usual spreading provisions.
• The scheme will first apply to livestock increases in the 1967 accounting year.

Export Incentive

Amendments are to be made to the scheme which allows a deduction for the value of increased export sales. These are designed to eliminate certain existing anomalies.

• A uniform 15 per cent deduction from income will be allowed to exporters for all qualifying increases in export sales.
• The base for calculating export sales is to be the first three of the five years immediately preceding the income year.

The changes are to apply to 1966/67 exports.

New Zealand/United Kingdom Double Tax Agreement

The Minister announced that the new Agreement was signed on 13 June. It will have legal effect in the near future when Orders In Council are promulgated in both countries. The application of the Agreement will in general be from 1 April 1965.

Other tax adjustments

• The 10 per cent rebate is to be continued for a further year.
• A widening of the law relating to deductible expenditure is proposed for the current year which will permit a deduction for subscriptions, fees and levies directly related to a taxpayer's employment, but limited to £10 per annum.
• Some changes to the special exemption for life insurance premiums paid are also proposed.
  • The limitation of payments to 20 per cent of assessable income is to be removed.
  • The range of qualifying policies is to be widened. The extension will include eligible policies on the lives of a taxpayer's wife and children.
  • The overall limits of either £250 or £325 per year remain unchanged.
• Separated and divorced persons are to be brought in line with widows and widowers for the special allowance of £78 where there are dependent children and tax payment in full would cause hardship.
• Companies may at present deduct donations made to Universities for research within certain limits. The range of qualifying donations is to be widened to include those made to bodies approved by the National Research Advisory Council. This change applies immediately and only requires approval of a body by the council.
• a further basis for valuing trading stock is to be written into the law to cover cases where special factors such as obsolescence have reduced values below cost.
• It is hoped that legislation will be introduced this year to liberalise and simplify the existing provisions for charging excess retention tax.

Taxation Review

Mr Lake also announced that a committee of independent experts is to be set up to review the whole field of central Government taxation, both direct and indirect. The committee will be assisted by a full time secretariat drawn from Inland Revenue and Customs Departments and the Treasury.

The review is to commence as soon as possible and the Minister will announce further details later.