The Gazette 1976

GAZETTE

BOOK REVIEWS

Johnston, Robert W. R., B.A., LL.B. — Wealth Tax.

Dublin: The Incorporated Law Society QÍ Ireland,

1976. xiv, 136p. 25cms. £5.00

The wealth tax legislation, which is one of the three

new capital taxes foreshadowed in the White Paper of

February 1974, must have been the most controversial

taxing statute ever to pass through the Oireachtas and

the longest in terms of time spent on debate. It is a

novel tax in many ways, not least because it is an annual

tax on capital. Furthermore it was not subject to either

the benefits or the drawbacks of any common law

precedent Early and informed commentary on the new

legislation was therefore highly desirable for all con-

cerned. We are indeed fortunate that Mr. Robert

Johnston's book has provided this in good measure.

At first sight, an annunal tax on capital at a flat rate

of 1 % appears to involve merely a simple valuation

exercise. Certainly, valuation is a very important factor

in this tax and the author wisely devotes a lengthy

chapter to this one topic. However, when one con-

siders how the ownership of wealth is so inextricably

linked with the law of property, trusts and settlements,

it becomes quickly apparent, that this is a tax, where

the guidance of the legal practitioner is of vital impor-

tance for the taxpayer, and where his advice will be or

ought to be sought. It is very fitting therefore that this

text-book should be written by a practising solicitor of

the standing of Mr. Jobnstort.

The layout of the book follows the customary format

of all text-books on taxation beginning with the usual

but highly important topic of the interpretation of the

taxing statute. This is an area which should be digested

at regular intervals by practitioners—not to mention

students. It will enable them more easily to apply to

particular problems, the fundamental principles (mostly

comprised in judicial dicta) which are regarded as

governing taxing statutes. The paramount position of

the grammatical interpretation for instance or where the

onus of proof lies are areas which spring to mind as

;

ng of vital importance in considering any taxation

problem

The basic elements of every taxing statute are un-

changing though understandably each particular statute

will have its own variations. The taxing statute charges

a tax in a given area on certain property, designates the

taxpayer, restricts or enlarges the scope of the general

charge to fit particular circumstances, provides exemp-

tions and reliefs and finally instals the general mechanics

for proper administration of the tax not least of which

are the sanctions for non-compliance. Mr. Johnston

treats each of these different aspects in a clear and

concise fashion, at times with a highly relaxing and

narrative style, while at the same time never straying

far from the text of the Act.

I am reminded here of the dictum of Lord Denning

in the Stamp duty case of Escoigne Properties Ltd. v.

I.R.C. (1958) 2 W.L.R. part of which reads as follows :

. . One of the best ways I find of understanding a

statute is to take some specific instances which by com-

mon consent are intended to be covered by it. This is

especially the case with a Finance Act. I often cannot

understand it by simply reading it through. But when an

instance is given, it becomes plain. I can say at once

'Yes, that is the sort of thing Parliament intended to

cover'. The reason is not far to seek. When the drafts-

man is drawing the Act, he has in mind particular

instances which he wishes to cover. He frames a formula

which he hopes will embrace them all with precision.

But the formula is as unintelligible as a mathematical

formula to anyone except the experts : and even they

have to know what the symbols mean. To make it

intelligible, you must know the sort of thing Parliament

had in mind. So you have to resort to particular in-

stances to gather the meaning."

Far be it from me to suggest or infer that the Wealth

Tax Act 1975 is unintelligible at any stage, but there

are several areas in the Act which introduce new con-

cepts in taxation law. Mr. Johnston by means of apt

illustrations explains these and emphasises the necessity

for such concepts in the Act For this both Revenue

and taxpayer will be graceful. The scope of the Wealth

Tax Act as regards the first assessable person, the

individual, is governed by two criteria, domicile and

ordinary residence. Domicile is so largely a matter of

intention that it could be difficult for the Revenue to

rebut a statement by a living individual that his in-

tention was to leave the country permanently. The anti-

avoidance provision of deemed domicile is therefore in-

troduced in the Act as a counter to fictitious claims of

change of domicile. The relevant provisions of Section

3(5) appear rather daunting at first sight. The author

correctly po'nts out however, again by way of example,

that a case of genuine change of domicile will not be

adversely affected. In such a case of genuine change of

domicile, the second criterion of ordinary residence will

almost certainly not be present.

One of the most impressive chapters in the book is,

in my opinion, the chapter on discretionary trusts. This

is an area where legal expertise is a sine qua non and

where the author is therefore at his best. The discre-

tionary trust, as defined in Section 1 of the Act, is

treated, as we know, as an assessable person and the

property comprised therein is regarded as the taxable

wealth of the trust No benefit of threshold is available

and the reliefs and exemptions granted to the individual

are also excluded. In view of the central theme of the

Act. which is to tax wealth in possession only it is

obvious that the discretionary trust could not be treated

in any other fashion. Regardless of pleas to the contrarv,

I think most will agree that the discretionary trust was

created in very many cases as a tax avoidance vehicle.

This being so, any legislation taxing discretionary trusts

would tend to be of an anti-avoidance nature. It is also

true to say that most anti-avoidance legislation which

is drafted of necessity in wide terms, will at times cover

bona fide areas and cause undue hardship. No doubt it

is for this reason that the draftsman included the

relieving provisions in Sections 5(2) and 5(3) of the

Act. These provisions are intended to cover situations

where discretionary trusts were set up for reasons other

than tax-avoidance. While the author makes a reasoned

plea for single object discretionary trusts, it seems likely

that the overriding consideration which guided the

draftsman was the existence of avoidance possibilities.

This factor presumably also explains why the scope of

Section 5(2) is not extended to include "issue" instead

of "children".

Speaking of trusts brings us to limited interests in the

context of the Act—again very much a legal area. The

Act in fact deems the owner of the limited interest to

be beneficially entitled in possession to each item of the

underlying property just as if it was his absolute pro-

perty This point is emphasised several times in the book

and the topic of settled property is dealt with com-

prehensively in Chapter 6 with the author again resort-

ing to examples to drive home the principles.