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1917-18-19.

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTI{A.LIA . .

OF THE

ROYAL COMMISSION

ON

TAXATION OF LEASEHOLD ESTATES IN CROWN L1\NDS.

Presented by Command; ordered to be printed, 9th October, 1919.

[Co st of P aper :-Preparation not given ; 840 copies; approximate cost of printing and publiFhin g, £ 36.]

Printed and Published for the GOVERNMENT of the COMMOKWEALTH of A U STRALIA by ALBERT J. MULLETT, Government Printer for the State of Victoria.

No., 174.-F.54:24.-PRICE, 1s. 6n.

-.

GREETING :

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GEORGE THE FIFTH, by the Grace of God, of the U'm:ted Kingdom of Great Britain and Ireland and of the British Dominions beyond the Seas King, Defender of the Faith, Emperor of India:

'1'0 our trusty and well-beloved GEORGE HANDLEY KNIBBS, Esq'uire, C.M.G.., F.S.S., Commonwea7,th Staiistician; HARRIS ADAM GRAY CuRRY, Esquire, J.P., President, Land Appeal Court of New South Wales; and HENRY OcTAVIUS ALLAN, Esquire, Victorian Lands Department:

KNOW YE that we do by these 0'/M' Letters Patent, issued in our name by Governor-General of our Commonwealth of Australia, acting with the advice of our Federal .Executive Council, and in pursuance of the Constitution of our said Commonwealth, the Roy-al Commissions Act 1902-1912, and all other powers him enabling? appoint you o be Commissioners for the following purposes :-

(a) To inquire into the incidence of that portion of the Commonwealth law which imposes a tax upon the owners of

leasehold estates in Crown lands ;

(b) To report whether such tax has been arranged upon an equitable basis, having regard to the fact that freehold lands are to tax as provided by Commonwealth law ;

(c) To report whether some other method of taxation of leasehold estates in Crown lands should be adopted, and, if so, what that should be ;

(d) To report generally upon such tax and its application.

AND WE appoint you, the said GEORGE HANDLEY KNmns, to be Chai?·man of the said Commissioners

AND WE require you, with as little delay as possible, to report to our Governor-General ·in and over ou1· sa1:d Commonwealth the result of yo·ur inquiries into the matter.<; intrusted t.o you by these our L etters Patent :

IN TESTIMONY WHEREOF we have these O'IM' L etters to be t'nade Patent and the Seal of ou1· said Commonwealth to be thereunto aJJixed.

(L.S.)

WITNESS our right, and well-b elo ved Sir RoNALD CRAUFURD MuNRO FERGUSON, a . member of His Majesty's Honorable PrimJ Counci l, Knight Grand Cross of the Most Order of S aint Michael and Saint Georg e, Gm·ernor-Genet·al and Commander-in-Chief of the Commonwea.lth of A 'ltstralia, this e1:ghteenth day of Decernb et·, in the year of our Lord One

thmtsand nine and eight een, and in th e ninth year of our reign.

By His Excellency's Command, W. A. WATT, Acting Prime M ini8ler.

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COMMONWEALTH OF AUSTRALIA.

REPORT OF . THE COMMISSIONERS.

To His Excellency the Right Honorable SIR RoNALD CRAUFURD MuNRO FERGUSON, Knight Grand Cross of the Most Distinguished Order of Saint Michael and Saint George, and Commander-in-Chief of the Commonwealth of Australia.

MAY IT PLEASE YOUR EXCELLENCY :

We, _your ·commissioners, appointed on the 18th day of December, 1918, for the following purposes, VIZ. :-(a) To into the incidence of that portion of the Commonwealth law which imposes a tax upon the owners of leasehold estates in Crown lands;

(b) To report whether such tax has been arranged upon an equitable basis, having regard to the fact that freehold lands are subject to tax as provided by Common­ wealth law; (c) To report whether some other method of taxation of leasehold estates in Crown

landS' should be 'adopted, and, if so, what that should be; (d) To generally upon such tax and its application; ·

have now the honour to submit our Report, together with the evidence taken, the conclusions at which we have arrived, and the recommendations which we deem to be justified thereby. The conclusions and recommendations are fully set out in Section V. of this Report.

Throughout the . Inquiry your Commissioners have kept in view the fact that the industry is of fundamental importance to the economic well-being of Australia, and in their review of conditions they have not lost sight of the fact that the recent advance in its prosperity needs to be allowed for in connexion with their decisions.

In the synopsis hereunder the scope of the Report and the various subjects, the consideration of which was involved by the questions submitted . to your . Commissioners, · are indicated.

One of your Commissioners (Mr. H. A. G. Curry) is of opinion that there should be no taxation of Crown leaseholds, ·and that the difficulties of assigning freehold values to leasehold lands­ with a reasonable degree of precision-are very great. Your other Commissioners (Messrs. H. 0. Allan and G. H. Knibbs) do not concur in these views.

Subject to the dissent expressed on the points mentioned, all three Commissioners are in accord throughout, and if the Commonwealth Government decides not to abandon the taxation of Crown leaseholds or to change the freehold basis of valuation, it is desired that the Report shall be taken to express the unanimous opinion of all your Commissioners.

Your Commissioners' work was greatly facilitated by the willing and courteous assistance of the pastoralists, stock and station salesmen, and other persons possessing expert knowledge, and by the very ready way in which the Commissioner of Taxation and the officers of his Department placed all available information at their disposal.

· Your Commissioners desire also to place on record their appreciation of the valuable services rendered by the Secretary of the Commission, Mr. H. H. Trebilco, whose intimate knowledge of the Land Tax Assessment Act, and of the effects of its provisions, was of the greatest assistance.

We have the honour to be,

Your Excellency's most obedient Servants,

H. A. G. CURRY. H. 0. ALLAN. G. H. KNIBBS, Chairman.

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SYNOPSIS OF REPOR1,.

SECTION I.- GENERAL, pp. 7-20.- 1. Introduction. 2. Classes of taxable leases. 3. Evidence of pastoralists' discontent with the existing scheme of taxation. 4. Synaptical statement of the present law relating to land tax: The Land Tax Assessment Act of 1910-16. 5. History of the Commonwealth law relating to the taxation of Crown leaseholds. 6. The

equitableness of Crown leasehold taxation. 7. Characteristics · of the present scheme of leasehold taxation. 8. Examples· illustrating the methods of calculating unimproved values.

SECTION !I.- QUESTIONS OF VALUATION AND ASSESSMENT, pp. 20-25.-1. Valuation should be fixed before assessment is 2. Disputes as to valuation.

3. Completeness of instructions to valuers. 4. Ambigu1ty in the valuation of improvements and its effect on values. 5. Can a freehold value be attributed to a leasehold area ?

6. Selling values of leases as the basis of taxation. 7. Evidence that Crown leaseholds have a good-will 8. Are the valuations of the Department of Taxation too high ? 9. Valuation Branch of the Department of Taxation.

SECTION IlL-EQUITABLENESS OF THE POLICY OF TAXATION, pp. 25-33.-1. The equitableness of the taxation of Crown leaseholds. 2. Can discrimination between taxation on freehold and leasehold be justified ? • ·3. Ad vantages of the leaseholder in respect of I .

taxation. 4. Apparently anomalous nature of the existing system of leasehold taxation. 5. Should the Crown leaseholder be exempt from progressive taxation? 6. Elimination of the conflict of various interests. 7. Taxation of land as a tax on the source of production. 8. Apparent conflict with State policy. 9. Alleged interference with State rights. 10. ·Importance of not overloading the Crown leaseholder with burdens. 11. Taxation of companies. 12. Suspension of collection of tax and the of Section 66 Land Tax Act. 13. but not suspension of tax desirable in certain cases. 14. Board for the remission of tax. 15. Assessment of the tax on the basis of the 'rent fixed by the State. 16. Is the Land Tax on Crown leaseholds burdensome ?

SECTION TV.- -MISCELLANEOUS QUESTIONS, pp. 33-40.-1. General. 2. Values affected by resumption conditions. 3. Allowances for ineffective improvements. 4. Allowances for disasters. 5. Borderlands. 6. Causes of uncertainty in valuations. 7. The question of capitalizing in order to ascertain leasehold interest. 8. The question of aggregation. 9. Board of Appeal. 10. Inequitableness of taxing freehold and not leasehold. 11. Extent of absence of agreement among Commissioners. 12. Why it is preferable not to tax Crown leaseholders at all? 13. Difficulty of assigning a freehold value to leasehold lands.

SECTION V.- RECOMMENDATIONS AND CONCLUSIONS, pp. 41-43.-See numbers 1 to 22.

Appendix A.- Questionnaire issued to Stock and Station Agents.

Appendix B.- Letter and telegram from the secretary of the Pastoralists' Association of Western Australia.

Appendix C.- -Objections against Federal Valuations of land in New South Wales.

Appendix D. - Docuinents examined but not. published.

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SECTION I.-GENERAL.

1. INTRODUCTION.-Upon receiving their Commission, your Commissioners at once got into touch with-(a) The Pastoralists' Associations; (6) Individual pastoralists not belonging to the Associations;

(c) Stock and Stati9n Agents ; _

(d) The Federal Commis_ sioner of Taxation; and others.

Many pastoralists appeared to be ·strongly antagonistic- to the incidence of the tax on their Crown leaseh<:>lds, representing that. in most cases it was of the greatest hardship, -and alleging that in some cases it was even ruinous. ·

After · interviews with Messrs. Leslie Smith and F. Ranson (Secretaries to Pastoralists' Unions, see hereunder), communications were made to the following bodies, i.e.:-New South Wales---Graziers' _ Association of New South Wales (Secretary, J. W. Allen) ; Pastoralists' Union of Southern Riverina (Secretary, Leslie Smith) ;

Pastoralists' Association of West Darling (Secretary:, R. H. Calder). Association of Victoria (Secretary, Leslie Smith).

Queensland-United Pastoralists' Association of Queensland (Secretary, F. Ranson). South Australia--Stock Owners' Association of South Australia (Secretary, J. A. Riley). . .

Western Australia-Pastoralists' Association of Western Australia (Secretary, J. H . , Noble).

Mr. Leslie Smith volunteered to act as a channel of communication, in order that the pastoralists generally might be kept in touch with the movements of the Commission. The Legislative Committee of the Pastoralists' Associations met in Melbourne in order to· set forth what they deemed to be their grievances. These, it has been found, were not quite identical in the different States, and it appears. to have been finally decided that the whole matter

of presenting the case of the associated pastoralists should be committed to the care of Mr. W. Benjamin, who was asked to act as their representative, and who attended, in their interests, practically all the public sittings of the Commission. The Taxation Department was not directly represented at the sittings of the though every facility for being represented was A questionnaire, the form of which is shown in Appendix A. hereinafter, was sent out to a large number of the leading stock and station agents, the object being to ascertain, through their answers, the nature and gravity of the incidence of taxation on Crown leaseholds and the basis on which sale prices were fixed. _ I Owing to the fact that for various reasons many of the pastoralists were absent from their .

records, junexpected took place in answering the questions, and it was found also that considerable time would be necessary to compile all the replies. For this reason the Commissioners decided, after consultation, to commence their sittings in Melbourne and to hear the evidence ?£ such pastoralists available in that city as were prepared to set forth the case in their own Interest. -These pastoralist witnesses, it was recognised, would in most cases be able to disclose the nature of the hardships to which they deemed themselves to be subject, and presumably they

would furnish the strongest available evidence regarding the undesirableness of any continuation of the taxation of Crown leaseholds in its present form. It was also decided to hear the views of the Federal Commissioner of Taxation, who, it was found, had already reached the conclusion, through his analyses of the incidence of the tax, that a considerable modification thereof was desirable. .

On the close of the Melbourne sitting and after analysis of the evidence taken in that city, the two Commissioners who sat there-the Chairman-and Mr. H. 0. Allan-went to Adelaide where public sittings were held by them on seven days. After a preliminary analysis of the evidence given there, the Chairman and Mr. Allan returned to Melbourne, and after two days went on to

Sydney, where Mr. Curry joined them, public sittings being held on ten days. It was intended to go on at once to Brisbane, but quarantine regulations caused a delay of about five days, during which time the analysis of evidence was further proceeded with. As soon as the quarantine regulations were relaxed, the Chairman and Mr. Allan visited

Brisbane, where public sittings were held on five days. evidence was analyzed, and a return made to Sydney, where further evidence was t'aken before the entire Commission. It was originally intended to go first to Perth, but delay through quarantine conditions prevented, and afterwards a letter and telegram (see Appendix B.) were received from the

Pastoralists' Association of Western Australia stating that it did not wish to bring any evidence before the Commission, it was decided to omit Perth from the itinerary of the Commissioners. This, it was felt, would not in any way minimize the value or influence the character of_ the concl11rsions reached by the Commission.

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The witnesses called numbered 12 in Melbourne, 18 in Adelaide, 25 in Sydney, and 19 in Brisbane, viz., 74 in all; and 12 replies to the questionnaires were also received, and appear as an Appendix to the evidence. It is believed that all material aspects of subJects submitted to your · Comn1ission have been placed· before -it· and have been fully considered.

Initially it was thought that the whole matter could be quickly investigated, that a decision could be reached expeditiously. It was so:rp.e time, before' the to state their case, and many. were prevented from leaving their hqldings by drought their presence being urgently required on their properties. . Owing to this and similar a large amount of time 'yas .expended before obtaining the requisite .evidence.

Moreover, the quarantine regulations imposed upon the community through of Influenza, the difficulties both of the pastoralists and your Commissioners _ in dealing promptly

With the matter. · . -

. 2. CLASSES OF TAXABLE LEASEs.-The classes of leases from the Crown which are taxable under the Federal Land Tax Act 1910-1914, and to which this inquiry therefore relates, are (see Sec. 29) :- - -

(a) Perpetual leases (with or without the right of the Crown. to revalue); (b) leases with a right of purchase; (c) pastoral leases; (d) · grazing leases; (e) leases for cultivation purposes; (j) homestead leases; (g) mining leases; (h) timber leases. ·

The owner of a lease for a period of one year or less is, however, not liable to taxation on that lease (Sec. 29). . · . ·

The following table shows what leases from the Crown in each State come within the above category, and also the total area of Crown leaseholds in each State which by reason of their holders owning land of an unimproved value in excess of £5,000 was, for the financial year 1915-1916 (the latest year for which figures· are compl,ete), subject to the tax. [This list is exclusive of land in process of alienation from - the Crown, such land being taxable to the holder as if it were freehold provided that all conditions imposed, other than the payment of purchase money, have been fulfilled. These lands do not come within the scope of the inquiry.]

TABLE OF TAXABLE CROWN LEASES · New South Wales.

Conditional Leases. Conditional-Purchase Leases. Homestead Selections. Settlement Leases. Homestead Farms. Crown Leases. Suburban _ Holdings. Irrigation Holdings. Residential Lease. Special Conditional-Purchase Lease. Special Leases. Improvement Leases. Scrub Leases. Inferior Lands Leases. Snow-Lands Leases. 18th Section Leases. Homestead Leases. Pastoral Leases. Artesian Well Leases. Prickly Pear Leases. Church and School Lands Leases. Western Lands Leases.

Total area taxed-42,046,644 acres.

Victoria.

Agricultural Allotment Licence. Grazing Licence. Grazing Area Lease. Grazing-Allotment Licence. Mallee-Allotment Licence. Mallee-Allotment Lease. Mallee Perpetual Lease. Perpetual Lease. Non-residence Licence.

Total area taxed-334,147 acres.

SnowiNG ToTAL AREA ActuALLY TAXED. _ Queensland. Agricultural Farms.* Perpetual Leases. _ Grazing Farms.

Grazing Homesteads. Holdings.

Gold-Mining Leases. Mineral Leases. Miners' Homesteads. Scrub Selections.

Total area taxed--:-86,167,777 acres. • Certain of these are purchases on terms.

South Australia.

Pastoral Leases. · Perpetual Leases. Right ofPurchase Leases.. .

Miscellaneous (grazing, cultivation, quarry­ ing, water-supply, &c.) .Mineral (mostly of little value). Total area taxed-86,656,496 acres.

Western Australia.

Mineral Leases. minip.g Leases.

Pastoral Leases. Pastoral Leases (in mining districts). Timber Leases. Total area taxed-68,468,078 acres.

Tasmania.

Pastoral Leases (Section Ill of Crown Lands Act 1911). Timber Leases (Section 120 of Crown Lands Act 1911). Mineral Leases (Section 44 et seq. Mining

Act 1905). . · ·

Total area acres.

1.035

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So far as the subject-matter of the ·Commission is concerned, it was not necess·ary· to deal with many of these, and, it was not necessary to: extend the inquiry into the field, seeing, moreover, that It appeared that only the pastorahsts regarded themselves as subJect to undue hardship. . · · · · ·

3. EviDENCE oF PAsTORALISTs' DiscoNTENT WITH THE ExiSTING ScHEME OF TAXATION.­ Abundant evidence was given before the Commission that many pastoralist-leaseholders were strongly opposed to the taxation of Crown leaseholds, and, apparently, their opposition WaE\ not merelY: a general antagonism to the of It was alleged in many cases, the

valuatwns by the valuers on the Taxation Commissioners Staff were excessive, and further that in the· outback country at least the rent reserved to the Crown is, when all relevant circumstances are taken into account, really the full economic rental. Hence any system of valuation which gave a freehold value higher than that deduced from such rental was deemed by them to be invalid. The tax operated, it was alleged, as an increase of rental, and the taxation policy of the Commonwealth Government was, therefore, in opposition to that of the State Governments in respect of their attempts to bring about the occupation of the -land by the inducement of low rentals, i.e., rentals which had regard to the j-eopardies and difficulties of the pastoral industry in the locality, and which, though apparently low, were not really so.

In general it was obvious that the scheme of the Federal Commissioner of Taxation for valuing was, as regards mec_hanism, and administration, fairly comprehensive ; nevertheless, it required modification in certain respects which, later, will be more fully indicated. The Commissioner of Taxation himself seems to have already become fully aware of this, and had intended to rriodify it ,in certain ways which will hereinafter be fully considered.

In order to render clear the scope of the question submitted to your Commissioners, -it is necessary to indicate briefly the nature of the existing law relating to Land Taxation. 1 4. A SYNOPTICAL STATEMENT OF THE PRESENT LAw RELATING TO LAND TAx-LAND TAx AssESSMENT AcT 1910-1916.-Up to and including the financial year 1909-1910, no direct tax· (land or other) was levied by the Commonwealth Government. On the 17th November, 1910, however, the Land T__ax Assessment Act 1910 was assented to, and a tax was imposed on the unimproved value of land owned on the 30th June, 1910, this tax being for the financial year 1910-1911. This Act was subsequently amended in 1911, 1912, 1914, and 1916, anq. it is with the law as it now stands that this statement deals. ·

The Act is declared to be "An Act relating to the Imposition, Assessment, and Collection of a Land Tax upon Unimproved Values/' and in relation thereto Section 3 contains several i¥J.portant definitions, the ones relevant to the matter remitted to your Commissioners being as f0llows :-

" Improved value "in relation to land means the capital sum which the fee-simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require. · "Unimproved value " in _relation to land means the capital sum which the fee-simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bonafide seller would require, assuming improvements (if any) thereon or appertaining thereto, and made or acquired by the owner or his predecessor

m title, had not been made. . ·

" Value of improvements " in relation to land means the added value which the improvements give to the land at the date of valuation irrespective of the cost of the improvements. Provided that the added value shall in no case exceed the amount that should reasonably be involved in bringing the unimproved value of the land to its improved value as at the date of assessment.

The of . these definitions is that the "unimproved value" of a parcel of land plus the value of the improvements thereon as qualified ·by the definition in the Act equals its improved value as defined by the Act. . Judicial decisions (the full text of which will be found in the Annual Reports of the

Commissioner of Taxation) have made more clear the meaning and scope of these definitions. Sections 4 to 9 deal merely with the general administration of the Act. 'Section 10 imposes the tax, and reads as follows:-(1) Subject to the provisions of this Act, land tax shall be levied and paid upon the unimproved value of all lands within the Commonwealth which are owned by taxpayers and which are not exempt from taxation under this . Act.

(-2) The land tax shall be at such rates as are declared by the Parliament.

. · . This is the section which provides for the aggregation of all interests, a principle which In connexion with Crown leaseholds has been objected to by the lessees. (The present rates of tax are imposed by the Land Tax Act 1910-1918, which is distinct from the Act now under discussion).

Section 11 reads-. (1) Land tax shall be payable by the owner of land upon the taxable value of all the land owned by him, and not exempt from taxation under this Act. . (2) The taxable value of all the land owned by a person is-(a) in the case of an absentee-the total sum of the ummproved value of each parcel of the land; (b) in the case of an owner not being an absentee-the balance of the total sum of the unimproved value of each parcel of the land after deducting the sum of Five thousand pounds.

-(3) Every part of a holding which is separately held by any occupier, tenant, lessee or owner, shall be deemed to be a pareel.

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Section 12-Land tax shall be charged on land as owned at noon on the thirtieth day of June immediately preceding the financial year in and for which the tax is levied.

The proviso to this section is now unimportant. Section 13 contains a list of institutions and public bodies which are not liable to tax on their lands. The important part for the purposes of this inquiry is sub-section (a), whi?h for the exemption of" all land owned by a State, or by a municipal, local, or other pub.Jw authonty of a State." ·

Section 14 qualifies the exemption granted . In the preceding section, and reads as follows:-With respect to land which under the last preceding section is exempt from land tax:-(a) the e-xemption shall be limited to the owner specified in that section and shall not extend to any other

person who is the owner of any estate or interest in the land. · (b) in the case of land owned by or vested in the Crown on any express or implied trust, the person entitled in equity to the rents and profits of the land shall, for the purposes of Act, and to the _extent to which he is so entitled, be deemed to be the ower of the land and be hable to land tax m respect

thereof.

Sub-section (a) of this section makes it clear how a lessee of Crown lands may be liable to tax notwithstanding that the Crown is, of course, exempt. Sections 15 and 16 deal with the lodging of annual returns . . Section 17 empowers the Commissioner to make valuations of land, and section 18 requires him, with the aid of all information in his possession, to cause assessments to be made for the purpose of ascertaining the amount upon which land tax should be levied.

Section 19 provides for the making of a default assessment when a person fails to lodge returns or lodges unsatisfactory returns. Section 20 permits the Commissioner to make alterations in or additions to an assessment at any time, but provides that the alteration shall be subject to appeal.

Section 21 limits the time· within which the Commissioner may alter an assessment on account of the valuation of land to two years after the date of the original assessment for that year, and in view of the magnitude of the task of valuing throughout Australia has an important bearing on the administration of the Act.

[Many of the valuation difficulties of the Land Tax Office appear to have arisen as the result of this section. It was impossible in many cases within the time limit imposed to value all properties subject to the tax, with the result that initially original assessments made on owner's figures had so1netimes to be allowed to stand though . subsequent

valuation has proved them to be far too small an amount. The section, however, has not been interpreted to prevent the Commissioner from valuing and including in an assessment at any time the unimproved value of land for which no value has been previously included in the assessment. For instance, the preliminary examination of many land tax returns has shown that· on owner's figures there is no leasehold estate in the Crown leases

held. An assessment has been issued to the holder on the total of his other interests. Later, after the expiration of two years, the unimproved value of the leasehold land has been found to be greatly in excess of that stated in the return, and as a result there is a taxable leasehold estate therein. In such cases the assessment has been amended by the inclusion of the leasehold estate.

The two years' limit in section 21 is held to run only from the date of the first inclusion in an assessment of the land or interest to be valued. J Sections 22- 24 (inclusive) are merely machinery sections. Section 25 provides that the owner of ·any freehold estate less than the fee-simple (other than an estate of freehold arising by virtue of a lease' for life under a lease or an agreement for a

lease) shall be deemed to be the owner of the fee-simple, to the exclusion of any person entitled in exc.eption is of legal tenancies for life created before the 1st July, 1910.

This section IS not Important .In the present connexion . . Section 26 provides that " The holder of land under a purchase or right of purchase from the Crown upon conditions, under the laws of a State relating to the alienation or disposition of Crown lands, shall be deemed to be the owner of the land if all the conditions other than the payment of purchase money have been fulfilled, but not otherwise." ·

Many so-called leases from the Crown on examination prove to be really purchases on terms. On fulfil!llent of all other tl}_an payment of purchase money (e.g., residence, clearing, erectiOn of Improvements, fenCing, &c.), and not until then, the holder is taxable on the full unimproved value of the land. Throughout, however, it must be remembered that no person (except an absentee) is taxable under this Act unless the aggregate unimproved value of his holding exceeds £5,000.

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Section 27 deals with leases· entered into after the commencement of the Act, viz., 17th November, It would be important in connexion with the present inquiry but for sub-section (3), which reads as follows :-. (3) Notwithstanding anything in this section where the owner of the fee-simple is exempt under section thirteen or forty-one (q.v.) of this Act from taxation in respe.ct of the land or the lease is a lease from the Crown, .a lessee of the land shall be assessed and liable for land tax as If the lease were made before the commencement of this Act and not otherwise.

The method of assessment of the holder of a lease entered into be·fore the Act is set out in section 28. This and section 29 ate the most important in connexion with the present inquiry, and are quoted in full. _Section 28-

(1) The owner of a freehold estate ih land who, or whose predecessor in title, has before the commencement of -this Act entered into an agreement to make or granted a lease of the land shall, for the purpose of his assessment under this Act, be entitled, during the currency of the lease, to have the unimproved value (if any) of the lease deducted from the unimproved value of the land.

(2) The owner of a leasehold estate in land, under a lease made or agreed to be made bef9re the commencement of this Act, shall be deemed to be, in respect of the land, the owner of land of an unimproved value equal to the unim­ proved value (if any) of his estate ; but if he has, before the commencement of this Act, entered into an agreement to make or granted a lease of the land, he shall be entitled, during the currency of that lease, to have the unimproved value (if any) of that lease deducted from the unimproved value of his estate :

Provided that where the owner of the leasehold estate has, within three years-before the commencement of this Act, been the owner of a freehold estate in the land, he shall be assessed and liable to land tax as if his leasehold estate had been under a lease made after the commencement of this Act.

(3) For the purposes of this section-( a) the unimproved value of a lease or leasehold estate in land means the value of the amount (if any) by which four and a half per centum of the unimproved value of land exceeds the annual rent reserved by the lease, calculated for the unexpired period of the lease at four and a half per centum, according

to the calculations based on the prescribed tables for the calculation of values : Provided that the Commissioner may from time to. time, if he thinks fit, alter the rate per centum upon which the calculations in this section are based. (b) rent, in the case of a lease of improved land, means so much of the whole rent as bears to the whole rent

the proportion which the unimproved value of the land at the date of the lease bore to the improved value : Provided that, where onerous conditions for constructing buildings, works, 01; other improvements upon the land, or expending money thereon, are imposed upon the lessee, or where any fine, premium,

or fore-gift, or consideration in· the nature of fine, premium, or fore-gift, is payable by the the Commissioner may assess the amount (if any) which ought, for the purposes of this section, to be added to the value of the rent in respect thereof, and the value of the rent shall be deemed to be increased by that amount accordingly; (c) the owner of a leasehold estate includes the lessee of land for life under a lease or an agreement for a

lease.

_ In applying these provisions regarding onerous conditions, account is taken of the depreciation of the improvements and the period of the lease. . Section 29-Notwithstanding anything in the last two preceding sections, the owner of a leasehold under the laws of a State or part of the Commonwealth relating to the alienation or occupation of Crown lands or relating to mining (not being a perpetual lease or a lease. with a right of purchase or ·a lease of land to be used for pastoral, grazing, or cultivation purposes, or a homestead lease or a mining lease or a timber lease) shall not be liable to assessment or taxation in respect of the estate, and the owner of a leasehold estate under any such laws for a term not greater than one year certain shall not be so liable :

Provided that.in the assessment of the unimproved value of a lease the value of any metals or minerals or other rights reserved to the Crown shall be excluded.

Section 29 may probably be dealt with most conveniently first. This section lays down definitely what Crown leases are liable to taxation; viz. :- · (a) perpetual leases ; (e) cultivation leases ;

(b) leases with a right of purchase ; (f) homestead leases ; - (c) pastoral leases ; (g) mining leases ;

(d) grazing leases; (h) timber leases ;

but stipulates that the owner of such a lease for a term not greater than a year shall not be liable. The proviso is self-explanatory. ·

The classes of taxable Crown leases having thus been specified by section 29, the measure of the liability of the holders may be ascertained by reference to section 28. · Sub-section (2) establishes the liability of the lessee, while sub-section (3) describes how the value of his estate may be ascertained. The example in § 7 of this Eection of the Report, and ·also those in§ 8, confirmed in the evidence of the Commissioner of Taxation, will be found useful in

method of calculation. ..The "prescribed tables " referred to in sub-section (3A),

will found In the Land Tax RegulatiOns.

!" I·

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' . Tile Commis.sioner has not, up to the present,' exercised the . vested in liim . by the pro.viso to this sub-section, of altering the rate of interest on which the calculations are based. . The operation of sub-section (3B) is illustrated by the 'examples above referred to. It may be added in with sub-section (2) that the last part (that dealing.

sub-leases) is not important in connexion with this inquiry owing to the fact that the maJOrity of Crown leases fo'rbid sub:-leasing. Where a sub-lease exists, however, its value calculated as prescribed must be deducted from the unimpr<;>ved value of. the mesne-lessee's estate. The proviso to sub-section (2) is unlikely to operate in connexion with Crown· leases.

Section 30 does not operate in connexion with Crown leases, as it presumes the existence of a lessor liable to pay land tax and a desire on his part to avoid the payment of a tax due on the land (either wholly or in ·by n1eans of a special agreement with the lessee. Section 31' forbids the allowance of any deduction from the taxable Yalue of land on account of a mortgage or of unpaid purchase money. _

Section 32 exempts a mortgagee or other secured creditor from liability but relates certain circumstances under which a mortgagee in possession may become liable. Section 33 deals with tlie liability of a trustee and makes him liable to tax on land in his trust as if he were beneficially entitled thereto. ·

Section 34 provides for a deduction of the value of an annuity under certain circumstances, calculated as prescribed. Section 35 makes the equitable owner of land liable to the same extent as if he were the legal owner.

Section 36 is framed to circumvent transfers made mala fide between husband and wife. Section 37 determines, with regard sold or transferred, the dates when the liability of the vendor or transferror ceases and that of the purchaser begins. Sections 38 and 38A deal with the assessment of joint owners and joint beneficiaries, and

provide many of the most vexed questions under the Act. They are not of direct importance in connexion with the present inquiry, although some of the owners of ·Crown leases are persons to whom the sections relate. Section 39 makes shareholders of a company individually liable to tax on a proportion

of 'the unimproved value of land owned by the company. The company is als·o liable, but section 43 (q.v.) prevents double taxation. It is also provided that under no circumstances shall a company be deemed an absentee. This, of course, means that all companies are entitled to the statutory deduction of £5,000 under section 11.

Section 40 provides for the joint assessment of companies having substantially the same shareholders. The effect of this may be appreciated when it is remembered that only one deduction of £5,000 is allowed in the joint assessment, whereas were the companies assessed separately, each would be entitled to that deduction. • ·

- Section. 41 defines and limits the liability of life assurance companies, the profits of are wholly or partly divided among the policy-holders. . ·

Section 42 makes a transferror of land liable to taxation thereon (as well as the transferee) until the transfer is made actually effective. · . - .

. . Section 42A gives power to the Com1nissioner to assess as a lessee for life any person who,. without a lease or an agreement for a lease, occupies, controls, or uses any land of which he is not the owner.

Section 43 covers cases where two or persons are liable to tax on the same land·, and permits. the in the assessment of the) person (or persons) secondarily liable of the proportiOn of own tax attributable the land in question or the proportion of the primary owner's tax attnbutable to the same land (whichever is the less). No question of this kind in the assessment of Crown leases. -

Section 43A amplifies the last section.

provide for, and specify the procedure in, appeals against assessments made

by the Commissioner of Land Tax. . ·

S.ection an owner liable to dispossession of his land if the Commissioner of Land Tax satisfies the High Court that the value of the land has been understated in a return to the extent of 25 per centum or more. Tlhe owner shall be paid as compensation the amount stated by in the return plus the fair value of improvements plus 10 per cent. on the total. . (See also section 71.) ·

Sections 49-60 are machinery sections dealing with· the collec.tion and . rec0v·ery of

-1039

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Section 61 requires a company to appoin,t ·a public officer to represent it for all the purposes of the Act, and defines his duties and liabilities. Section 62 deals in similar manner with the duties and liabilities of agents and trustees. . Section 63 invalidates for the purposes of this Act any contract, &c., which purports to alter the incidence of the tax, to relieve any person from liability, or has the purpose of evading the Act in any way. · This section is qualified by section 30 ante.

Sections 64 and 65 empower the or his authorized officer to have a.ccess

to all lands, buildings, &c., for the purposes of the Act, and to require any person to attend and . give evidence . before him. .

·· Seqtion _66 is a very important one, and may be quoted in full.

(1) In any case where it is shown to the satisfaction of the Commissioner that a taxpayer liable to pay land tax has become bankrupt or insolvent, or has suffered such a loss that the exaction of the full amount of tax will entail ·serious hardship, or that, by reason of drought or adverse seasons _ or o,t4er adverse conditions, the returns· from the land have been seriously impaired, a Board consisting of the Commissioner, the Secretary to the Treasury, and the

Comptroller-General of Customs, may release such taxpayer wholly or in part from his liability, and the Commissioner may make such entries and alte!ations in the assessment as are necessary for that purpose. (2) The Commissioner shail be the Chairman of the Board, and the decision of the majority shall prevail.

(3} The Minister shall cause to be laid before both Houses of as soon as may be after the close of the financial year a full statement of all cases in which, and the grounds on which, liability has been · so released.

Claims for relief under this section have been made, and wher.e the conditions specified . in the section have been found to exist, the tax due has been remitted wholly or in part according · to the merits of the case. · · Sections 67-70 specify certain offences against the Act, and the penalties to which those

who commit them are liable (in certain cases forfeiture of the land). · Section 71 declares that. where land has been forfeited under the preceding sections the same procedure (with certain exceptions) shall be followed as in compulsory dispossessions under section 48. The owner of the l:and shall not, however, be entitled to any compensation.

Section 72 states that payment of any penalty shall not relieve the person paying it from his to assessment and payment of tax. ·

· . Section 73 any person who aids, abets;' counsels, or procures, or is in any way

knowingly concerned inthe commission of any offence, liable to the same penalties as the person actually cbmmitting the offence. · ' Section 74 (the final section) empowers the Governor-General"to make regulations for the purposes of the Act (see Land Tax ·Regulations).

illustrating the prescribed methods of calculating the unimproved values of

lea.sehold ·estates will be found in § 8 of this section. These were considered desirable in view of the complex character of the. calculations, and have been confirmed by the Commissioner of . Taxation (see p. 228 9f the Evidence). . · . . · .

5. HisTORY oF THE CoMMONWEALTH LAw RELATING To THE TAXATION oF CRoWN LEASEHOLDS.-The previous of this Report . expresses the scope and effect of the Land Tax Act 1910-1916. . For a complete understanding of the issues at stake,

It is, however, necessary to examine. the Act as it originally stood when first passed in 1910, and to note the of the subsequent amending Act of 1914. · Under the original Act (w4ich applied to assessments made for the financial years 1910-11, 1911-12, 1912-13, and 1913-14), section 29 of the Act read as follows:-

29. Notwithstanding anything in the last two preceding sections the owner of a leasehold estate under the laws of. a State relating to the alienation or occupation of Crown lands or relating to mining (not being a p erpetual lease Without revaluation, or a lease with a right of purchase) shall not be liable to assessm.ent or taxation in respect of the estate. · · · . ·

· It will be seen that this section exempted ·from tax all leases from the Crown except the two classes viz., perpetual leases without revaluation and leases with a right of purchase . . Under this enactment, the largest number of taxable Crown leases existed in New South Wales. :,rhis is _due to the fact that conditional leases in that State carry with them a rigp.t of _purchase, and were, therefore, taxable. South Australia was affected to a lesser · degree, the

majorfty of taxable leases in that State being perpetual leases without revaluation. Queensland the Ol).ly .other containing taxable leases of any appreciable value.

. .. The last year of before the introduction of the Act of 1914 was the

financial year 1913-':14. The fourth Annual Report of the Commissioner of Taxation shows that that year the total value of leasehold estates in taxable Crown leases the

. Commonwealth was only £2,048,411. . As t:Qe total value of all taxable in in

.land was for year it" .will he see.n that the question of taxation of Pr9wn leases

was not then of such vital importance as it has since . .

I

'I

'·

I '

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The calculation of the value of leasehold estates was regulated by sections 27 and 28, which were substantially the same as they now stand in the present law, and as they are quoted in full in the previous § of this section of this Report. No great difficulty was experienced in connexion with the assessment of these leases, more especially as the land had not then, except in a few been valued by the Departmental valuation staff, and assessments of Crown leases were to a large extent based on owner's

As a general rule leases of the nature described were not held in such vast areas as are some of the leases which become taxable under the 1914 Act. The majority of the holders of taxable_ Crown leases were not taxpayers unless they held in addition a considerable quantity of freehold lah_d or land in process of alienation from the Crown, because the total unimproved .value of their leasehold estates did not amount to £5,000- the amount of the statutory deductioh.

In 1914, the Land Tax Assessment Act 1914 was passed, and by it section 29 was altered to read as follows :-29. Notwithstanding anything in the last two preceding sections the owner of a leasehold estate under the laws of a State or a part of the Commonwealth relating to the alienation or occupation -of Crown lands or relating to mining (not being a perpetual lease witfteat re¥&itffilttea or a lea;se with a right of purchase or a lease of land to be used for pastoral, grazing, or cultivation purposes, or a homestead. lease or a mining lease or a timber lease) shall not be liable to assessment or taxation in respect of the estate and the owner of a leasehold-estate under any such laws for a term not greater

than one year certain shall not be so liable : ·

Provided that in the assessment of the ttnimproved value of a lease the value of any metals or minerals or other rights reserved to the Crown shall be

(Omissions from the original section are indicated in erased type, while additions are italicized.) As a result of this amendment, the classes of Crown leases now subject to taxation are-( a) perpetualleases; (e) cultivation leases;

(b) leases with a right of purchase; (f) homestead leases; (c) pastoral leases ; · (.q} mining leases ;

(d) grazing leases ; (h) timber leases ;

.with the proviso that the owner of a lease of the above nature for a term not exceeding one year is not liable, and that in the valuation of these leases the value of metals, minerals, or other rights reserved from the Crown must be excluded. The amending Act brought into the taxable sphere millions of acres previously exempt, and the matter oi leasehold taxation became one of first importance. The valuation difficulties of the Department were greatly intensified, more particularly as a large part of land was in

out-back regions and difficult of access. In order tb calculate under section 28 the value of a leasehold estate, it is necessary first to arrive at the value of the land on a freehold basis. In some parts of the Commonwealth where large areas of taxable leases are situated little and in some instances no land has ever been aliena ted from the Crown. No attempt has previously

been made to value these lands on a freehold · basis, and there are, of course, no sales of freehold land of a similar nature in the vicinity from which an indication of freehold values might be obtained. ·

Leaseh6lders in most instances returned for the land a value which, in view of the income derived therefrom and other considerations, was considered by the Taxation Department to be far beneath the true value- especially in the case of large pastoral and grazing leases. In some cases they declared that the land had actually no value on a freehold basis owing

to the peculiar circumstances of the pastoral and grazing industries. Disputes immediately arose which, in many cases, it has been impossible to settle out of -Court. It is claimed by son1e Crown lessees that the method of calculation prescribed by section 28 of the original Act (see examples of working of this section) was not intended to be used in connexion with. tenures of the nature made taxable by the 1914 Act, nor is such a method equitable when apphed thereto. ·

In Mr. A. F. Twine's evidence a table is given showing figures for the financial year 1915-16, the last year for. which complete figures are available(see Q. 3553). They illustrate for one particular year the magnitude of the questions involved. Similar amounts are involved for each of the financial years 1914-15 to date. As an indication of the effect of the 1914 Act, it may he noted that ih the last financial year before the passing of that Act (1913-14) the total value of taxable

leasehold estates was which by the passing of the 1914 Act was increased for a later year (1915-16) to £14,538,953. Thus for the Commonwealth the area of taxable Crown leaseholds for was 284,016,5?9 the unimproved value o£ lessees' estate ther.ein wa:s the additiOnal tax due to InclusiOn of lessees' estate in was £189,820; and the average additional tax per acre was 0·160d., or about 8s. 6d .. per square mile. These figures can, of

be regarded as only roughly approximate, and it is believed that the amount, £189,820_ , ·should be more nearly £250,000 (see later).

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6. THE EQUITABLENEss OF CROWN _ LEASEHOLD TAXATION.-The terms of the commission require your Commissioners to report upon the equitableness of the basis of the taxation of Crown leaseholds, having regard to the fact that freehold lands are subJ'ect to tctx. In view of the fact that the object of the taxation is the obtaining of revenue, there may be some who might suggest that leaseholders f?hould be upon the freehold value as if they owned the la;nd (the tax, however, being teduce'd by th_e amount of rental paid, and the freeholder (where the land is alienated) paying on the proper capitalization of that rental, and this it would appear should be done whether one is dealingJwith Crown or other leaseholds). This, however, would not be taxing the lessee's interest only, and would grievously burdensome. Thus in order to promote the . occupation· of where considerable expenditure is necessary for improvements, such a method of taxation must necessarily be greatly modified, and the . taxation of the lessee confined to his interest in the lease.

According to the evidence given in Queensland, leaseholds are preferred to freeholds for pastoral purposes. Thus it would appear that the burden of taxation upon freeholds is somewhat acutely felt, and tends to bring about an economic condition under which freehold tenure is disadvantageous, so much so that if that were the object of the policy it would appear likely in the long run to succeed. Thus while, from one point of view, it would appear that Crown leaseholds should be taxed exactly as freeholds (subject,_ however, to the remission of rental), from aJ:?.other point of view such taxation would sometimes be most undesirable, inasmuch as the evidence shows that in certain cases there would be difficulty in bri}lging about the occupation of the If the authority granting the lease arbitrarily increased the rental, it has been urged in the evidence that would be an act of repudiation of its obligations, such as would have very far-reaching effects; inasmuch as the faith in the Government obligations would be destroyed.

But, on the other hand, it ,cannot be held that, when lands are sold or are leased without an express provision that they shall not be taxed, a Government has no right to tax them. At the same time, in so far as the taxation operates adversely to the occupation of lands, it is virtually hostile to the policy of settlement.

In most cases," it is not in any real antagonism with State policy, and if the powers of remission of tax are granted, and are exercised in a liberal manner in cases of hardship and disaster, &c., all operations of the tax that can be regarded as hostile to occupation are eliminated. This fact, however, indicates that the power of remitting the tax should be possessed, ·and should be exercised by a Board of Remission (sec. 66), so constituted as to commend itself in respect of impartiality, competency, experience, and the possession of special facilities for their particular work.

In order to ascertain the equitableness of the taxation of Crown leaseholds, it has to be examined in the light of tax·ation on ordinary leaseholds, viz., where the lease is of a freehold or part of a freehold. The matter is somewhat complicated, and may now be

7. CHARACTRRISTICS OF THE PRESENT ScHEME OF LEASEHOLD TAXATION.-The general scheme of the taxation of leaseholds is, as mentioned, somewhat complicated, and may be illustrated best by means of examples. This scheme may be explained in general terms in the following way :-All freeholds in the hands of the freeholder aggregating the required amount (£5,000) are taxed according to the graduated rate, irrespective of mortgages, leases, and othG.r encumbrances . . In addition, interests in lands, including leases, are also taxed. The value of a lease, under the

method prescribed by section 27, sub-section (2), of the Act, is the amount of the present value of the rack-rent (assumed to be 4! per cent. of the unimproved value) capitalized at 4! per cent. for the unexpired term of the lease. . Thus a lease W'ith an unexpired term of 87 years is assessable as freehold, bebause the multiplier at that stage approximates to 22i , which, multiplied by the rate per cent. (4!), equals 100.

The general scheme of the Act as administered requires that no piece of land shall be doubly taxed.. To avoi.d double taxation, section 27, sub-section (2), provides for a deduction, the operation of whiCh IS demonstrated by case B of the following example :- ·

Taxation of Lessees who lease'jrom Persons not exempt under section 13 or 41 of the Act.

Case a lease or an agreement for a lease entered into before 17th November, 1910. Unimproved value of land, £10,000. Rack rent (at 4! per cent. thereof), say £450

Reserved rent, say . . · . . . . 100 . . Excess therefore £350.

term of lease at date of assessment, say, 20 years. This gives a multiplier of 13 ·298 (see actuarial

tables, Stat. Reg. 337 of 1913). Leasehold estate = £350 x 13 ·298 = £4,654. . In this case the freeholder pays tax on £5,346 added to his other lands ; wh1le the .leaseholder pays on £4,654 added to his other holdings, making up the full unimproved value of the land .. • • .. .. .. • • . .. .. .. .. .. £10,000

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· Oase B._:Under a lease made or agreed to be made after 17th November, 1910. We asslime the freeholder holds only a piece of land with an unimproved value of £10,000, which he leases. He is assessed without regard to the lease as follows :-Unimproved value, £10,000, less deduction (section 11), £5,000;

Leaving ·a taxable balance of £5,000. The tax on this is (£26 7s. 9d., plus 20 per cent. = plus £5 5s . 6d.) = £31 13s 3d. The lessee is assessed as follows :- '•

Unimproved value of land leased, £10,000. Rack rent (at 4! per cent. thereof) = £450. Unexpired term 20 years (multiplier, 13 ·298, as above). Leasehold estate equals 13 ·298 x 450 £5,984

Assuming that the lessee has no other land he will be assessed as follows:- . . ·

Unimproved value of leasehold estate as al?ove, £5,984:, less deductiOn (sectwn 11), £5,000, g1ves a taxable balance = £984. Thus the gross tax is £5 3 6

From this tax the lessee is entitled under Section 27 (2) to a deduction of the sum of the two following amounts :--= (i) The amount which bears the same proportion to the tax payable in-respect of the land, by the · owner of the freehold estate as the unimproved value of the leasehold bears to the un­

improved value of the land, viz. (see freeholder's 5,984 divided by 10,000, and multiplied by £31 13s. 3d. 18 18 11

(ii) The amount which bears the same proportion to the tax payable in respect of the unimproved value of any precedent leasehold estate as the unimproved value of the leasehold estate bears to the unimproved value of the precedent leasehold estate. (N.B.-(ii) operates only where the person being assessed is· the sub-lessee of the land. In such, the deduction under (ii) is_ calculated in a similar manner to (i) above.)_ In this case there is no precedent lessee, therefore the deduction Nil

Balance . -. Nil

The tax is thus extinguished because the. deduction is greater than the gross tax. For the purposes of further illustration, let it be assumed that the lessee was also the owner of land (in aq.dition to his leasehold estate) of an unimproved value of £20,000. His assessment would then be-

Unimproved value of the leasehold estate of £5,984, plus other interests, £20,000, equals a total of · £25,984

Less deduction (section 11) . . 5,000

Giving a taxable balance of The gross tax (by tables) is therefore The proportion of this tax attributable to the leasehold estate is-5,984 divided by 25,984, and multiplied by £222 6s. 9d.

From previous example "the deduction under section 27 (2)

Leaving the net tax payable on the lease The tax on other interests = £222 6s. 9d. less £51 3s.

Thus making the net tax . . .

£51 , . 1

£18 18 11

£32 5 2

171 2 . 8

£222 6 9

£203 7 10

If the leasehold interest had not been included, the lessee's tax would have been on £20,000 less deduction, £5,000 (section 11); giving a taxable balance of £15,000, on which the net tax-(by tables) eguals £135. · Xherefore the increase in tax due to the inclusion of the leasehold interest is £203 7s. lOd., less £135 as above, equals £68 7s. lOd. · . . _ . _ •

By reason of section 27 (3) the value of a Crown leasehold is always under method (case A) herein referred to. · ·

A review of the above examples reveals fact that, in order to preserve-, without causing double taxation, the principle of aggregation and the effect of thegradua.ted scale of tax, a somewhat complicated method is rendered necessary. ·

With _ regard to case B, dealing with Section 27, it is demonstrated above___:. (a) That where a lessee has no other interests and the lessur .·is taxable with one deduction of £5,000 only (under Section 11), then the lessee pays no tax. · (b) That where the lessee has land of an unimproved value greater than that owned

by the lessor then he (the lessee) pays tax. Thus it is evident that the principle of aggregation has been equitably maintained, so far as this is possible under the Act. ,

· the last example the facts should be noted >-The proportion of the lessee's

tax attnbutable to the leasehold Interest is £51 4s. ld. The deduction under Section 27 is £18 18s. lld., leaving a net tax, attributable to the leasehold, of £32 5·s. 2d. ·

However, the effect on the lessee's tax of the inclusion .of the leasehold interest is much Qreater than this. As indicated in the example, had the leasehold . intere-st been excluded his ·tax would have been £135; while witli it, it is ' £203 7s. lOd., an increase of £"68 7s.l0d.' - Of

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amount £32 5;S. 2d. iE! the net tax on the leasehold interest, while the balance (£36 2s. 8d.) is due to the fact that he has to pay on his other interests at a higher rate than otherwise, because his leasehold interest is included in the aggregate on which he is assessed. It ·will be evident from a close examination of the above examples that it is more advan­ tageous to lease from a landholder. "':ith a large estate (whet.her or from one with a small estate. This Is because of the operation of Sectwn 27 (2), Illustrated In

the previous exan1ples. It is proper here to draw attention to the; fact that the ·tax payable does not depend merely upon aggregate of the holdings of the taxpayer, since it is influenced by the amount of .tax payable by the freeholder and the precedent lessee. On a superficial examina­ tion, this fact might appear to be an undesirable anomaly, since the taxpayer's . obligation in respect of tax does not depend solely upon the aggregate of his own holdings, but upon what may be regarded as the mere accident of the derivation of his holdings. After consideration your Commissioners are satisfied that these anomalies, however, are of but small moment, even in the case of ordinary leaseholds to which they apply, and since in the case of Crown leaseholds they cannot arise, they do not affect fundamentally any judgment as to the equitableness of the taxation of Crown leaseholds.

As pbiilted out above, however, if, in respect of taxation, Crown leaseholds are placed in the most favorable category, such a · course is consistent with the treatment of those who derive their leases fron1 landholders with large estates.

8. EXAMPLES ILLUSTRATING THE METHODS OF CALCULATING UNIMPROVED VALUES.­ Reference has already been made, § 7; to the fact that the prescribed . method of

calculating the unimptoved ,values of Crown leaseholds are somewhat · complicated. They are best illustrated by suitably chosen examples, as given hereunder.

It has 1 been deemed desirable to illustrate clearly the methods which, conformably to the exis·ting law, are employed in the calculation of the unim­ :proved value of leasehold estates. , This is neces­

sary to estimate the force 'or weakness of the con­ tention of the leas-ehold-e rs that the ground rent paid to the C'rown plus F ederal land t ax is so large a sum that it is impossible for them to pro:fit.ahly work their leases. It will, moreover, indicate the effect of certain alterations suggested by lessees in

the present method of calculation and assessm.ent o·f Crown leasehold's. Other alterations and. substitu­ ·tive methods which !have ·been suggested have not been detailed here, because thf\Y depart entirely

fr om the principle·S of the present method, and can only be compared with the latter at one point, i.e., the result. The sub-stitutive methods are:-(a) To ad·opt as the taxable value of a lease­

hold estate the aiJlount paid for .it on an •actual sale of the lease or for the

lease of a similar property.

(b) To adopt as the taxable value of a lease­ hold estate llJmount of the estimated net income capitalized at 10 per ceut. less the value of improvements and live stock on the property.

It .is thou.gh t that examples 1-3 are su:fficien tly exp lamed by the-i r headings and subject-matter;

4: is expres-sly. designed to illustrate

what, m actual cases selected at random, is the per­ <3enta.ge o.f rent plus Federal land tax to freehold valuation of the subj.ect leases.

compiling this t·a,ble, the f,act that rates and

State, municipal and shire taxes, F ederal

mcome and war-time pro:fits taxes have also to be paid in certain eases has not been overlooked. As State and municipal taxes, these are

entuely the concern of the State Governments who are the lesso rs of the land. · F ederal and

war-time p:ro:fits taxes de,pend wholly on the actual net derived, and in ass·essment for the .pur­ pose o:t those Acts deduetion is allowed for all r ates and taxes paid.

Example 5 is self-explanatory. F.5424._J2 ·

Example 1.

!-I YPOTHETICAL ExAMPLES OF CALCULATIONS OF LEASEHOLD EsTATES BY THE PRINCIPLES GovERNING THE PRESENT METHOD OF THE CoMMONWEALTH CoMMISSIONER OF TAXATION.

(Section 28 o.f the Land Tax Assessment Act 191,0-16:) Case 1 is based on the assumption that the Crown le,as-ehold land is unimproved.

- Area: 5,000 acres. Rent: £150 per annum. Unimproved value on a freehold baS'is: £1 per acre. of lease : 20 year·s from 1st July, 1911.

Improv,ements: Nil. Year of assessment. 1918-1919. The calculation of the leasehold eS'tate under sec­ tion 28 of the Act is proceeded with as follows:-

. (a) The unimproved value -of the land on a freehold basis is £5,000. (b) The annual rack (or full economic) ther eof is (by Land Tax Act) deemed

to be 4-l ·per cent. thereof, £225, i.e., it is assumed that a man· u sing such land would reap a return of 41 per

cent. on money invested, £225. (c) For this land the lessee pays · an annual rent of £150. (d) The net annual advantage h e is deemed to

derive is the excess o.f the ra:ck rent over the actual rent, viz., £75. (rif the actu al ren t exceeds the rack rent there is no leaseho-ld estate.) (e) H ·aving found the annual benefit, it re­

mains to be settled how long the lesse6 i s to enjoy that benefit, and what is the present value of the total benefit to be enjoyed by him or his successor before

the expiration of the lease. (For this purpose, interest tables at the rate of 41: per cent. are prescribed by the land tax regulations.)

T·he unexpired term of the lea:se at 30 th June, 1918, wrus thirteen year s. The present value of £1 payable fo·r thirteen years is, by the 4i per cent. tables, shown to be £9.899, or, say, about £9 18'8.

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.. The present value of £7 5 so payable is 7 5 X

9.8 99 = approximately £742, and this is the value of the leasehold estate f or land tax purposes. Case 2. ·T he same .general conditions as in

Case 1 are assumed, except .tha t at the date of lease ther e were improvements of a value of £1,000, and that because of these improv·ements .the r ent w;as fu: ed at £180.

The improved valu e is £6,000. In that case, the calculatio n is as follows :­ ( a) Unimpr oved va1ue ( as previously), £5,000. ' ' '

(b) Full economic rent (.as £225.

(c) Net rental (as previously ), £180.

This rental is, h owever, not all a ttributable to the unimproved Yalue. T he proportion whioh is so attributable is 5,000-6,000 of £180= £150. Annu al benefit (as previously) , = £75 .

Multiplier (as previou sly), 9.899 . Leasehold es tate-75 X 9.899 = £742.

Case 3. 'l'he general conditions .are assumed to be as in Case 2. In this •ease, however, the lease con­ tains a covenant that the lessee shall, during the first year of the lease, 0onstruct improvements of a value of £1,000, which shall, on the expiration of the lease, become the pcroperty of the Crown, i.e., in which he has no tenant right. This constitutes an onerous condition within the meaning of section 28 (3b) of the Land Tax Assessment Act. Section 28 (3b) permits the Commissioner t.o assess the value which · ought to be added to the rent in re­ spect of t his onerous condition. This he does as f ollows:-

Amount expended u nder covenant = £1,000. L ess depreciation of improvements to date of t ermination of lease (say 10 per cent.), £100. V alu e passing to the Orown = £900. -:Term of lease, 20 years .

Table IV. of the· Land T ax Regulations shows that £.03118 (or il!bout 8d.) set aside annually, and accum;ulated at 4-! per cen t. for 20 years, wauld amount to £1.

T he annual sum which wo uld, under the same circumstances, amount t o £900, is, therefore, 900 X .03118 = 28. 062. Add.ition t o annual rent, £28 1s. 3d.

The calculation of the leasehold estate is as fol- lows, v-iz. :....,...

U nimpr ove d value = £5,000. Full economic r ent ( per cent.) = £225.

Reserved r ent, £150, plus annual addition, £28.0 62 = £1 78.062. Excess = £46. 938. U nexpir ed term, 13 years, and since the pre­

sen t value of £1 for 13 yeaTs at 4-?J per cent. is 9. 899, the multrplier is that figure. T hus the leasehold estate is 46.9 38 X 9.899 = £465. (Wiher e any fine, premium, or foregift or other consider ation of this n ature is paid to the lessor, the annual addition is calculated in the same man­ n er, the _d epreciation, however, not entering into the que t wn. In such cases the gr ound rental is less than the normal annual rental, viz., that which would h ave been payail;Jle but for t·he foregift, &c.

The actual annual r ent paid £or the lease is deemed to be the grou nd Tental plus the annual amount which, accumulated at 41 ·per cent. over the unex­ pired term of the lease, \vill, at the expiration of period, r e?oup the amount paid as fine, pre­

m irnm, ·or foregift.)

Case 4. R eappr.aismnent of ront and total o1· par tial r eSIUmptions 1 before expiration of lease.­ Some leases from the Crown provide for the re­ appraisement of r eserved rent at :fixed periods . throughout the lease. In assessing value of the

lease, this is ignored. (It is considered that any increase in rent may be .balanced by a correlated increase in the value of the land, and, consequently, in the full economic rent. The annual benefit to the

lessee is, theTefore, not less in the years for which a higher r en tal is paya·ble.) WherE!, howeve r, in ·pursuance of the cond.i tions of a lease, the Crown resumes pai't o£ the area of a taxable Crown lea se·

hold, all assessments f or taxation purpose s since the ·commencement of the lease are reduced, and the tax overpaid for those years is refunded. For example, let it be assumed that, in pursuance of the

lease in Case 1, the Crown was, in June, 1921, to resume one-half of the area leased, and that this portion was o.f an unimproved value of £2,500, an d carried half the rent. The calculations set out in Case 1 would then 'be amended ws fDllows :-

(a) Area no-t value =

£2,500. Full economic rent = £112.5. R eserved rent = £75. Excess = £37.5. Unexpired teTm, 13 years; multiplier (as

before), 9.8 99 ; therefore estate = 37.5 X 9.899 = £371.

(b) Area r esumed-unim·proved value £2,500. Full economic rent = £112.5. R eserved rent = £75. Excess = £37.5. Unexpired .term, 3 years (1st July, 1918, to 30th June, 1921l the date of resumption); multiplier

(present value of £1 per annum for three years at 4f per cent.) = 2.S10; therefore estate = 37.5 X

2.8i = £105.

T otal leasehold es tate (37.1 + 105) = £476.

E xample 2.

uNEXPIRED TERM OF LEASE.

An essential factor in the calculation of the

unimproved value o·f a. leasehold estate is the unex­ pired period of its te:r.m . The tax for any fin ancial year is based. on land owned on the 30th June immediately pTeceding that year, and in calculat­ ing the unimproved value of a leas.ehold. estate, the unexpired p eriod is the number of years which the lease had, .at that date, still to run. The longer tihe unexpired term the .greater rs the value of the lease,

all other things being equal. It will ·be .seen,

therefore, that, given land whose value as a free­ hold remains constant, the leasehold estate

is greatest at the commencement of t he lease, and diminishes s:terodily each year.

As an illustration of this pTinciple may be taken a lease for 20 years from 30th June, 1910:-Unimproved value = £5,000. · Reserved (Orown) r elit = £150.

Improvements = nil. (a) At the 30th June, 1910, the lease had au

unexpired term of 20 years.

The value of the estate would be calculated follows:-Unimproved value = £5,000. Full economic rent ( 4i per cent.) = £225.

"Reserved" (Crown) r ent = £150. Annual excess (from which the value is de­ duced) = £75,

The present value of £1 per annym accumulated for 20 years is shown by the prescr1bed 4f cent. interes t tables to be £13.298 (or, approximately, £13 6s.). This the multiplier.

'rhus the value o·f the leasehold es tate at 30th June, 1910, is 75 X 13 .298 = £997. (b) At the 30th June, 1920, this lease will have an uneJCpicred term of ten· years.

The annual excess will be (as in (a) aJbove); £75, The present value of £1 per annum accumulated for ten years is shown by the taibles to be £8 .089 ( or £8 l s.) .

Ttb.us the value of the leasehold estate at 30th .Tune, 1920, is 75 X 8.089 = £607. _ (c) At the 30th June, 1925, the lease will have an unexpired te1•m o.f five years. •

The annual excess remains = £75. The present value o.f £1 per ann11m accumulated for five years is 4.488 (from ta1 bles) . T hus the value of the lease at 30th J nne, 1925, is, therefore, 75 X 4.488 = £337.

(d) At the 30th J nne, 19 29, the lease will only have one yeaT to run. The pr.esent value of £1 payable for one year (assuming the payment to be spread uniformly o-ver the year) is s.how:r;J. in the tables as 0.978 ; the taxable value of the lea,sehold estate_ as at 30 th June, 1929, is, therefore, 75 X .978 = £73.

Td summarize, the taxable estate in this p!l.'rticu-lar' lease is, according to the unexpired term­ With an unex pired term of 20 years - £997. With an unexpired term of 10 years - £607.

With an unexpire

E xample 3.

RATE OF INTEREST USED IN THE CALCULATION OF LEASEHOLD EsTATEs .

As previously sst out, the 'taxable estate in lease­ hold land is reg·arded as the present value of the estimated net annual benefit to the lessee froi:n the unimp1•oved land set aside annually and ac­

cumulated for the period of the unexpired term of the lease. For this purpose interest tables at the rate of 41 per cent. per annum are prescribed by the Land 'Tax Regulations. I t has been claimed by some le.aseholders that if 10 per cent. per annum

were adopted as the basis of the table, a· more

equi twble result would follo w. The fo llowing ex­ ample sh ows how the adoption of the 10 per cent. rate would operate in an ac tual case :-Unimproved value of land in the lease, £20,000 .

Full ec onomic re nt (4i per cent.), £900. Reserved (Crown) rent, £404. Excess, £496.

19

The unexpired term being 13{; years, we take into account that the present vaiue of £1 per an­ num accumulate d for years at 4-! per cent. ·is

10.175 (or £10 3s . .6d.); therefore, the leasehol d estate would be, as at present calculated, £496 X 10 .175 = £5,047. If the annual benefit were capitalized at 10 per

cent., as desired by some lessees, the value of the estate would be r edu ced, as indicated hereund,er. The present value of £1 per annum accumulated for 13 -! years at 10 per cent. 1s £7.32151 (or £7

6s. 5d.) ; calculated on this basis, the lea.Jsehold estate wo uld, ther efOTe, be 496 X 7.32151 = £3,631, the difference being £1,416. T he D epartment r egards the value of the lease , at the date on -..vhich the assessment is based as the

sum which, at 4t per cent. compound interest, ·would, at the expimt ion of the lease, amount to

··-1045

the total sum of the annual benefit s still to be de­ rived by the lessee (at 4t per cent. interest again). T,he ta.x;payers contend that, assuming the method adopted to be cotrect, then the present value of the annual benefits should be computed at iO per cent. instead of 4l per cent., because the former is the rate of interest .requir.ed by pastoralists from

theiT venttJ;res. No pa.storalist would, therefo're, give more for a propeTty than the sum which would at 10 per ·cent. compound interest amount to the sum of the annual benefits still to be del'ived by

the lessee.

Example 4.

ST ATEME NT SHOWING FOR THE FINANCIAL YEAR 1915-16 IN AcTUAL OAsEs THE ToTAL oF 0RowN ' R ENT AND FEDERAL LAND TAx PAm oN CERTAIN CROWN LEASEHOLDS.

Case 1.

The total unimproV'ed value . bf land oWned, in-cluding calculated value o.f leaseholds, is £496,27 4. From this is deducted, under section 11, £15,000

Taxable balance, £491,274. Gross tax, £17,172 15s. 6d. The avemge rate of this tax in the £1 is (as per Land Tax Act 1910-14), 8.304d.

Includ€d in the asesssmen t (inter alia) are the following leases, which are selected as examples:-Freehold Unexpired "Reserved" Leasehold Area. in Acres. Valuation. Term at (or Crown) Estate.

(a) (b)

30. 6. 15. Rent .

£ Years £ 8. d. £

52,000 24,260 21 143 10 10 12,994

198,720 105,980 12 496 16 0 39,826

The tax paid on (a) is 12994 X 8.304d. = £449 lls. 10d., and on (b) is X 8.304d. · £1,377

19:8. 7d.

The total payments of rent and land tax on the leases are, therefore:-(a) £143 lOs. 10d. + £449 lls. lOd., as above . = £593 2s. 8d.

(b) £496 16s. + £1,377 19s. 7d., as above = £1,874 15s. 7d.

The percentage of total tax and rent paid on

each lease to the total freehold valuation of the lease is, ther·efore :-(a) £593 2s . 8d. --;..- 242 60 = 2.44 per cent.

(b) £1,874 15s, 7d. -7- 105980 = 1.77 per

cent.

The examples in the accompany,ing schedule A have been calculated in the same manner as the abo ve, and. show that the presen t' method of calcula­ tion do es not r esult in a tax " t.hich, when added to

the Crown rent, is an excessive of the

value of thP land.

E xample 5.

SHowiNG IN AcTUAL OAsEs THE EFFECT oF THE SEPARATE AGGREGATION AND AssESSMENT oF LEASEHOJ"D E sTATES IN CRow N lANDS.

I t has been claimed t·hat the value of the Crown leaseholds owned by a taxpayer should not he in­ cLuded in one assessment with freehold and other interests owned by him. In schedule B appended

the same cases as in the previous illustration have been taken to indicate the loss of revenue which wo uld he suffereCL if thB ·principle of aggregation of Crown leaseholds with freeholds was ab andoned. · ( See schedule B.)

..

f l,i

,I;._

II.

20

SCHEDULE A, showing the Percentages which Rent plus tax paid on certain Leasehold E states bears·to the Freehold value of the land. (These are actual cases of Pastoral lea. ses.)

Total I D d Unimproved uc-Value. twn.

£

(a) 97,456

(b) 101,986

(c) 1108,412

(d) 938,450

(e) 2,134,582

£

5,000 5,000

5,000

5,000

5,000

Taxable Balance.

£

92,456 96,986

903,412

933,450

2,129,582

Assessments.

Tax. Area.

£ s. d.

2,217 2 0 578,757 acre.s

2,386 19 6 l : :

32,627 19 0 I 429 sq. miles

312! "

33,754 7 6 { 76,080 acres

457,440 "

78,609 6 6 f

Freehold Unex­ Valuation.

- £

79,579 30,620 32,800 98,380 147,870

30,110 166,500 20,000 316,384

Years. 28 21t 20t 22t Wt 19t 12 13lt 20t

Typical Leases included in the Assessment.

Reserved (Crown) Rent.

£ s. d.

602 17 5

250 8 0

192 10 0

429 0 0

726 17 11

199 0 0

1,233 0 0

404 0 - 0

2,886 0 0

Leasehold E state.

£

47,931 15,670 17,329 57,085 74,992 . Hi,127

58,351 5,047 1 53,254

Proportion ot Tax paid on the Lease.

£ s. d.

1 ,090 8 4

366 15 1

405 11 8

-2, 050 7 1

2,693 10 7

544 1 10

2,098 15 8

185 17 3

5,643 16 4

Tota l of Tax and Reserved (Crown) R ent.

£ s. d.

1,693 5 9

617 3 1

598 1 8

2,479 7 1

3,420 8 6 '

743 1 10

3,$31 15 8

589 17 31

8,529 16 4

Perce ntag e to F ree ho ld Valuation.

£

2· 128 2 ·01 1 •823 2 •52 2 ·3 13 2 '4 67 2 ·001 2 •940 2 •696

In Co11nexion with the tabulatior1 it should b·e borne In mind that any decrease rn the freehotd val uation of the leasehold land causes a decrease in the leasehold estate and a consequent decrea se in t ax, the percent age being t hus approximately maintained. The value of the table as a justification of, the of leasehold is

therefore not affected by the contention that the valuations on a freeho1d basis are excessive.

ScHEDULE B, showing loss of Revenue in certain cases if Crown Leaseholds were assessed separately from other landed interests.

Separate Assessments.

Present Assessments.

Crown Leaseholds. Other Interes t s.

-

"

Total Total Total

Unim- Deduc- Taxable Tax. Unim- Deduc- Taxable Tax. Unim- Deduc- Taxable Tax. Total Loss. proved tion. Balance.· proved tion. Balance. proved tion. Balan ce. Tax. Value. Value. Value. --- £ £ £ £ s. d. £ £ £ £ s. d. 97,4n6 £ £ £ £ s. d. £ s. d £ s. d. 101,986 496,274 908,412 938,450 2,134,582 5,000 92,456 2,217 2 0 47,931 5,000 42,931 588 9 1 49,525 5,000 14,525 626 1 5 1,214 10 6 1,002 11 5,000 96,986 2,386 19 6 32,999 5,000 27,999 290 17 6 68,987 5,000 63,987 1,176 9 4 1,467 6_ 10 919 12 5,000 491,274 17,172 15 6 211,443 5,000 206,443 6,491 12 3 284,831 5,000 279,831 9,243 13 3 15,735 5 6 1,437 10 5,000 903,412 32,627 19 0 132,077 5,000 127,077 3,515 7 9 776,335 5,000 771,335 27,675 1 3 31,190 9 0 1,4 37 10 5,000 933,450 33,754 7 6 73, 478 5,000 68,478 1,327 7 6 864,972 5,000 85 9 972 30,998 19 0 32,326 6 6 1." 28 1 5,000 2,129,582 78,609 6 6 158,301 . 5,000 153,301 4,498 15 9 1,976,281 5,000 1,971; 281 72,673 0 9 77, 171 16 6 1;437 10 The following notes should be read with the above Table:- (1) The figures shown are for the financial year 1915-16, this being the latest year for which complete figures are ava ilable. For the pr esent yea r the rates of tax will be 20 per cent. greater than those shown. (2) It h as been assumed for the purposes of the illustration that were the leasel;wlds assessed separately a d eduction of £ 5,000 under Section 11 would be allowed in each assessment. It may be added that the e:ffect of capitalizing the annual excess of the raek-rental over the rental reserved by the lease is always to sensibly reduce the leaseh_ old estat e and consequently the taxation, as is shown by the following example. Such may be regarded as an appendix to example 3:-Capitalization at 7! per cent. in lieu of 4i per cent., as at present­Unimproved value of land, £20,000; full economic rent (4! per cent.) Less the reserved (Crown) rent Shows a balance of The unexpired term being 13! years, the multiplier, at 7! per cent. (from annuity tables), is 8.307 · · The value of the estate is therefore £496 X 8 . 307 = Thus ·reverting to page 19, the difference is-(At 4! per cent., £5,047, and at 7! per cent., £4,120), viz. SECTION !I.-QUESTIONS OF VALUATION AND ASSESSMENT. £ 900 404 £496 £4,120 £927 . 1. VALUATION SHO_DLD BE. BEF?RE AssESSMENT IS UND ERTAKEN.-Assuming the equita?len:ss of the taxatwn- whwh will be discussed at lengt h later_..:::._the question of satisfactory valuation Is fundamental, as has already been made apparent. Your Con1missioners are satisfied that it is desirab.Ie .that· the t ax depends .should be definitely settled before the CommiSs:oner. of .Taxati?n to his assessment, and If a Valuation Appeal Board be ?:eated on the hnes IndiCated .m this Report, not only :will the Commissioner's work be greatly fa cilitated but the complex operatiOn of assessment (on whwh a considerable an1ount of time must be spent) is deferred till the basis on which it is founded has been fixed beyond further questiOn.

8

0

0

0

0

1047'

21

2. DISPUTES AS TO VALU.ATION.-:-Disputes as to the values assigned to pastoral leases have been very frequent, inasmuch as the amount of. the taxation is, by this and pastoralists objected many of the TaxatiOn DeJla!tment s valuations. Cons:der.able attention was therefore given to this element. Your Comrmssioners were not able to arnve at a very satisfactory explanation of the fact that there are sometimes extraordinary divergencies between the values attributed to leaseholds by the lessees on one side and departmental valuers

on the other. This is not, however, remarkable, for the lessee has regard to what may be properly called the of .his·lease, looking at the matter only or mainly from the point of view of the value of his Interest In the lease ; whilst the Department, on the other hand, values the interest in the land with its potentialities in respect of purpose and limitations. It was suggested on the Department's side (see Q. 2284) that the cause of the disparity is that the taxpayer tends to greatly exaggerate the value of the improvements. It was also alleged that values were considerably affected by reason of the nearness· of the date of expiry of any lease. One departmental witness . (see Q. 2283) stated that there were no c;omplaints lodged against the method of assessing the interest of private leases. The difference between the two views was often great, the officers st:urdily defending their valuations .and the taxpayers just .as strongly opposing them. Pastorahsts urged on the one hand that, Inasmuch as the pastorahst industry was hazardous, owing chiefly to climatic uncertainties, the capitalization of their · interest in their leaseholds should be on the basis of a high percentage, i.e., the multiplier to give

its freehold value should be The Department, on the other hand, used 4! per cent., which was, your Commissioners believe, unquestionably too small. · Naturally the Commission was not in a position to decide on mere questions of detail, nor it have been appropriate to have attempted it. The conclusion reached by your Commis­

sioners was that no better general scheme of valuation than the one adopted by the Taxation Department was suggested by any witness. It required that the freehold value of the leased land should be ascertained, and, provided it is properly carried out by the officers on the lines directed, it is capable of giving a fairer result than any other system that could, in the opinion of the Commission, be devised. At the same -time it is believed that some modification of detail is desirable in order to ensure that full account shall be taken of all possible reductions in values because of disabilities. This matter will hereafter be referred to more fully.

In Appendix "C" the result of a table submitted by the Deputy Commissioner of Taxa-tion, New South \Vales, is shown. This indicates that objections against valuations in that State have generally been settled. at or near the Department's valuations. . 3. CoMPLETENESS. OF INSTRUCTIONS TO V ALUERS.-Disregarding for the present the basis of capitalization· of leasehold interests, the instructions to valuers issued by the Federal Comn1issioner of Taxation bear evidence, as already implied, of careful compilation, and are very comprehensive. They are well considered, and direct that full allowance is to be made for all necessary factors (including practically every disability likely to be met with in working of a holding), and they emphasize the need for giving special consideration in the case of areas remote from rail or water communication. Although the actual results of valuations have proved, in · the opinion of the Commission, to be sometimes even greatly excessive, that does not appear to

have arisen from the nature of the instructions given to the valuers. The Commissioner appears to have taken all reasonable precautions to develop a good system of valuation, and before it was adopted his valuers conferred with pastoralists themselves and their agents in regard to the fairness of the method, and these would appear to. have indorsed the system, though this is not quite certain. The valuers themselves, on reviewing their results, also feel satisfied that they have arrived approximately at correct results, or rather at a correct basis for determining the value of the interest in the leasehold. It becomes necessary, therefore, to point out in what way valuations may be excessive, and in so doing it should be pointed out that the Federal Commissioner of

Taxation had fully satisfied himself before the appointment of the Commission that the system required some modification. Here it may be said that .the whole question of the leasehold interest turns upon the following, viz., whether the rent reserved to the Crown is the full economic (or rack) rent of the lease. If it be so , then there is nothing left for the Commissioner of Taxation to. tax. If, on the other hand, the ordinary or current rate of interest on the unimproved freehold

value be greater than the rent reserved to the Crown, then there is necessarily a "goodwill" value to the lease, and according to the Act it will be subject to taxation. .

. It is freely recognised jn the evidence that a goodwill exists, but it is denied that it exists In all cases. Your Commissioners are satisfied that where goodwill does not exist the case is quite exceptional. The point will be more fully considered later. 4. AMBIGUITY I THE VALUATIO OF I MPROVEMENTS AND ITS EFFECT ON VALUES .- The

" unimproved value" obviously has often to be deduced "from the "improved value." The contention, frequently repeated in the evidence, that it was impracticable to deduce the unimproved value of the lease in the manner proposed in the official instructions of the Department of Taxation (because of the difficulty of appropriately valuing improvements) has, in the opinion

of your Commissioners, very little weight, although there is a sense in which the value of improve­ ments is ambiguous, and to this we will now refer.

22

To an incoming tenant the value of improvements usually differs enormously from the cost of the improvements to the original leaseholder, and this has given rise to ambiguity as to the mode in which improvements should be _ valued. This may be . best illustrated by a supposititious case, which in substance is, however, a frequent occurrence. A pastorahst smks three wells, of which only one yields potable water, costing, let us say, £1 ,000. Another sinks one well, costing the same amount (£1,000) , securing thereby also a satisfactory (and,_ let us say, an equal) water supply. As regards the expenditure necessary to make the occupatiOn of thelease effective, the two pastoralists are in the same position, but an incoming tenant would clearly regard two of the wells in the former case (the failure) as having no value whatever, and therefore would not regard £1 ,000 as the expression of the value of the improvements, even though he might admit that the wells quite properly cost £1,000.

In a lesser degree analogous observations apply to other forms of improvement. To an incoming tenant they are often regarded as of small value, though to persons interested in deducing unimproved values they are more liberally valued.

5. CAN A FREEHOLD VALUE BE ATTRIBUTED TO A LEASEHOLD AREA ?- What has just been indicated applies, of course, to questions of deducing unimproved values from improved values. But -a more fundamental question was raised in the evidence of the leaseholders, viz., whether there is such a. t hing as freehold value in the case of a Crown leasehold. A large number of witnesses affirmed that it was impossible to attribute a frc r value to leasehold lands for the reason, among others (a) that there were no sales of comparable freehold lands similarly or identically circumstanced and conditioned as to tenure, characteristics, and usage; and (b) that over a large portion of the Australian States no person, having due regard to the salient facts, . would think of purchasing lands as freeholds for pastoral purposes. The question has been

somewhat complicated by being involved with the definition in section 3 of the Land Tax Assessment Act 1910- 16, which runs as follows:-"Unimproved value," in relation to land, means the capital sum which the fee- simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assum­ ing that the improvements (if any) thereon or appertaining thereto and made or acquired by the owner or his prede­ cessor in title had not been made.

a bond fide seller being described, in a .judgment of the High Court, as a person willing but not over-anxious to sell. The buyer and seller need only be supposititious, and are not necessarily actual. The basis, as is pointed out by the Chief Justice of the High Court, Sir Samuel Griffith, is a hypothetical purchaser, and does not depend upon the question as to whether there was an actual buyer and an actual seller for a particular parcel. It was recognised that the answers to this question are to some extent conjectural; and that the matter turrs upon what is likely to be paid, assuming the existence of a desirous buyer with a willing vendor who was not specially

desirous of selling. Where the attempt is made to deduce the '' unimproved value" from the " improved value" and the value of the improvements, the definition of the latter becomes relevant, as already indicated. This, by the Land Tax Assessment Act 1910- 1916, is as follows :-

"Value of improvements," in relation to land, means the added value which the improvements give to the land at the date of valuation irrespective of the cost of the improvements : . Proyided that the added value shall in no case exceed the amount that should reasonably be involved in bring-mg the ummproved value of the land to its improved value as at the date of assessment.

The effect of this definition is that in practical cases attention must be directed to the limiting qualification, which recognises that the potentialities of the. land constitute part of its value : they are inherent in the land and are not created by the improvements. Much of the evidence given before the Commission shows that the ·witnesses had merely found themselves in a difficulty as regards making up their minds in what, to them, were abstract

cases.. The fact of an individual being unwilling or unable to make up his mind does not, however, establish that there is no selling value to the land, and it may also be pointed out that a preference for a particular kind of tenure- leasehold land--does not show that another form of tenure cannot ·exist, or that a. value cannot apply to an unusual form m tenure. Further, in the absence

of all other of estimating the freehold value, an estimate obtained bysuitablyeapitalizing the full economiC rental of the leasehold may be regarded as a good indication of its value . . As already stated, your Commissioners are satisfied that, in general, the methods by means of whwh the valuers of the Commissioners of Taxation endeavour to discover the freehold value of leasehold area are, in the main, sound, and with very little modification can be made to give results. Further, when a Valuation Appeal Board is constituted, as recommended,

It IS that _any aspe?t of valuation whi0h as yet has not been fully considered and allowed for, will be recogmsed and mtroduced into the existing scheme as a modification.

6. DED UCTION OF FREEHOLD VALUES FROM SELLING VALUES OF LEASES. - In the evidence of the pastoralists it was repeatedly urged that the value to be ascribed to the lease could be the sale. price of the whole, i.e., the -lease, stock, plant, and improvements

combmed. The proposal m essence was as follows :- From the amount paid for any pastoral

--1049

23

lease deduct the value of stock, plant, and improvements; the balance, if any, was t he value of the in the lease, i.e., the "good-will" of the lease. It is self-evident t hat such a method is of low value in any case, since by a relative slight over-estimation of these several items the value of interest in the lease can be greatly reduced, and the evidence of the Commissioner of Stamps, Queensland, showed that in "walk-in-walk-out" sales vendors have assigned, in certain cases, exaggerated amounts to in order that the balance of th.e purchase price attributable .to lease and improvements (on whwh alone stamp duty was then paid) should be reduced below Its actual value. -

This suggestion that the proper method of arriving at the value of the · lease­ interest-which from this point of view is the value of the holding for the purpose of assessing the to adopt solely the results of actual sales of leaseholds or the estimated selling value,

vour Commissioners regard as invalid, not only because sales are often or usually conducted on the " walk-in-walk-out " basis, but because it is a wholly unreliable method. Occasionally only is a value attached to each item, such as stock, improvements, plant, and the leasehold itself. Even then it often is not really well ascertained; the division of values is more nominal than real ;

more frequently no value at all is attached to the lease. The usual method is payment by a lump sum, with no specific assignment of separate values to each item. Sometimes the purchase is based on an amount per head for the stock and the lease, whilst the improvements and plant are given in. Another objection to basing the tax solely on the selling values of leaseholds is indicat ed in the evidence of Mr. John Rain, stock and property salesman and Crown leaseholder (Q. 3547).

He says-! claim that to arrive- at a; fair solution of the question on the basis of sales is impracticable, for being so influ­ enced by varying circumstances such as drought, unfavorable markets, tightness of money, or the sudden increase of pests, the fluctuations in values are very marked and frequently sudden.

'

With this view your Commissioners concur. The selling price is one only of the evidences of value. To separate and correctly apportion the amounts which together make up t he value of a holding is a difficult task, and in respect to any one item may often lead t o uncertain results.

In some cases cited, representing quite large transactions, it was claimed that the leases had really no value at all, and therefore there should be no tax. Your Commissioners are satisfied that this suggested method cannot be recommended for adoption. [Still another suggestion made was that the tax should be in the form of a super-income tax in lieu of a land tax proper. Having regard, however, to the fact that all lessees pay an income tax and some already pay a super-income tax, and to the fact that an income tax in this respect might prove to be a tax almost entirely on enterprise, and whereas the present consideration is that "having in view the fact that freeholders have to bear a land tax whet her

leaseholders should not pay a similar tax," your Commissioners are not prepared to recommend tJhe adoption of such a basis. The tax has relation to the value of the land, whether t he latter be leasehold or freehold, and in the case of freehold the question of income does · not arise, and the new feature should not, in the opinion of your Commissioners, be introduced in connexion with leasehold.]

One important witness gave evidence on this point of view as follows :-If the good-will value of leases were taxed in common with all other forms of wealth it wo uld, I further submit, be abundantly clear that the only reasonable basis upon which to levy t he tax would be the "exchangeable value." Supposing a wealth tax were in existence (the italics .are not in the original) and my possessions consisted of £100,000 on fixed deposit in a bank, I would be taxed upon that £100,000. To-morrow I exchange· that £100,000 for a

Queensland leasehold. Assuming that the conditions of my purchase were reasonable, I should continue to be taxed upon the £100,000 so long as there was no variation in the valuation as compared with the value at the date of pur­ chase.

And, further, in evidence regarding the proposed solution of the diffi culty, he says :-l have been considering this question for several years, and I feel that there is no satisfactory solu­ tion of the difficulty by taxing leaseholds upon their market value, just as freeholds are taxed upon their market value. In the case of a leasehold, improved or unimproved, but unstocked, no di ffic ulty appearsto present itself. If

unimproved, the selling value and the taxable value would coincide, without t he nee d for calculations of any sort or kind whatever. In the case of an improved leasehold, the selling price less the value of the existing improvements should be the taxable value.

Apart from the nature of the supposition indicated by the words in italics and the very obvious objection to such a basis, viz., the ease with which by slightly loading the improvements the good-will can be extinguished (which elsewhere in this Report is fully considered), and apart also from the further objection that the value of the "good-will " varies according as t he sale is a satisfactory or unsatisfactory one, the method really suggests that t he basic principle of a land tax, viz., that it should be 'Qased on the actual freehold value of the land, should really be wh olly

eliminated. In Mr. Ewing's evidence, he says (Q. 3974) , " the whole comparison of capital value ,depends on the comparison of carrying capacity; that is, the vital element in the whole,..of the valuation-carrying capacity first, middle, and last," a proposition which commends itself to your Commissioners, .which the·one indicated above does not.

24

After mature consideration, your Commissioners are satisfied that this suggested meth?d for determining the basis for the taxation on the sale value of leaseholds (suggested by the witness referred to) may be dismissed as unsatisfactory. ·

7. EVIDENCE THAT CROWN LEASEHOLDS HAVE A "GooD-WILL" VALUE.-ln the minds of your Commissioners there is no doubt that almost every lease has a goodwin, that is to say, the rent reserved to' the Crown is not the full economic rent. In. urging that Commonwealth taxation was virtually equivalent to an increase of rental, and therefore was inimical to the State policy of securing the occupation of Crown lands it was alleged that the rental was . made low in order to induce occupation. - These low rentals were determined upon after a perwd of disaster, and in view of the whole past history of the area. Even if on the average the rentals

were the full economic rentals in years better than the average, they do not represent full economic rental, and, consequently, if a policy of remission of tax in case of disaster or hardship is adopted, this_fact ought to be taken into account- that the rental is lower than proper amount, and a "good-will" exists. Moreover, a general increased knowledge as to the proper mode of conducting the pastoral industry, in the securing of water supply, and ·in the means of communication, &c ., indicate in a general way that a low rental fixed under the circumstances indicated cannot be regarded as the full economic rental.

Evidence was given that in Queensland large values were paid by the State Government for the lessee's interest in his lease, when creating its stock stations, but in two cases the values do not represent the "good-will" without very considerable amendment. Your Commissioners are fully satisfied that, in the majority of instances, the full"economic rental is greater than the rental · reserved to the Crown, and that-although pastoralists :may hope to make good their expenditures in a very limited number of years- it increases, other things being equal, with the unexpired length of the tenures.

The following table of values paid for good-will illustrates the question referred to :-QUEENSLAND GOVERNMENT STOCK STATIONS.

Paid. fo r the

Name of Station . Date of Purchase. by the Leasehold Estate as Valued by the Department as at 30th June

Queensland Government. previous to acquisition.

-

£

Vanrook .. 27.4.17 45,000 £74,979 (excluding one lease contained in the £45,000)

Wando Vale* .. 27.4. 17 23,000 £41,902

Dotswood .. 1.10.16 44,060 Not valued

Lyndhurst .. 1.11.18 38,483 £38, 172

Mount Hutton* .. 24.5. 16 14,000 £18,252

Dillalah . . No particulars .

• The ligures inserted as the pri ce paid by the Queensland Government are supplied by the Accountant of the State Stations Department, Queensland. Reference to the report of the Auditor-General of Queensland for the year ended 30th June, 1917 (page 23), however, reveals that,, at the request of the Chief Inspector, the value of the Wando Vale leases was reduced to £3,350 2s. 3d. in the books of the Department. The Depart- ment co?sidered however that £2 3,000 te]>resented the compensation which a Jessee would be entitled to receive from an in coming tenant. .

Stmtlar!y t he Audrtor-General considers that the value of the Mount Hutton lease should be shown as £4 ,662 ISs. 4d., while the Stock Stations Dep1rtrnent states that the value is £14,000. The Auditor-General sugge.J t s that the value is stated at £14,000 to coYer a shortage of stock at the llrst muster. · ·

8. ARE THE VALUATIONS OF THE DEPARTMENT OF TAXATION TOO HIGH ?-There is reason to believe that the valuations of the Department of Taxation are often-though by no means invariably-unduly high. For example, in the preceding table the amount £3,350 (to which the £23,000 should be reduced in order to be comparable), is to be compared with £41,902. The value

of the Mt. Hutton lease should similarly be, say, £4,663, instead of £18,252. Vanrook should be £45,000, instead of £74,979. . · - ·

whole in the of your Commissioners, indicates that a thorough review

of questi_on of the basis of valuation should be made by the Valuation Appeal Board actmg .m concert with the va.luers. It ought, however; to be added that your Commission·ers· had a amount of eviden?e submitted which pointed to the fact that many lessees under­ estnnated the rental value of therr leaseholds, as the following examples show:--

In the_ appeal of. of Warbreccan against the decision of the Land Court, the rent per square mile for the mitial penod was 17 s. ; the assessing Commissioner's valuation for the second period was 29s. 9d., the lessee's being 12s. 6d. , the decision of the Land Court was that the maximum rate of 50 pe.r cent. increase under the law should be adopted, i.e., the Land Court adopted 25s. 6d.

In the Cubbre and other leases (seven leases in all ) the Land Court determined on a 50 per cent. increase in each case . The details are as follow:- .

Estimated by lessees Estimation by assessing Commissioner Determined by Land Court

8. d.

.. 35 0 ..

85 6

713

8. d.

10 0

40 6

29 9

8. d.

15 0

45 0

45 0 .

8 . d.

i5 0

59 0

37 6

8. d.

33 0

70 5

67 6

8 . d.

25 0

92 6

67 6

8. d.

35 0

70 0

70 0

1051

25 .

In eleven cases (all) in which appeals against Federal land tax assessments have been made in New South Wales to various Courts, the results were as follow:-Owner' s Estimate-£ £ £ .. £ £ £ £ £ £ £ £

115,464 . . 40,710 . . 14,988 . .. 25 ,458 .. 43,288 .. 12,025 . . 102,125 .. 5, 167 . . 3,612 .. 3,267 . . 2,000

Taxation Department's Estimate-

115,896 .. 52,605 .. 23,976 .. 29,275 . . 55,623 . . 16,575 . . 157,830 . . 9,688 .. 10,559 . . 5,945 . . 3,600

Court's Decision-

l55,B96 .. 53,690 . . 21,042 . . 28,639 . . 51,666 . . 18,220 . . 148,546 . . 9,688 . . 10,128 . . 5,070 . . 3,400

The total results were :- Sum of owners' valuations, £368,104 ; sum of the Taxation Department's estimates, £521,573 ; sum as by the Court's decisions, £505 ,985.

9. VALUATION BRANCH OF THE DEPARTMENT OF TAXATION.-- In the opinion of your Com­ missioners, the Valuation Branch of the Department of Taxation should be entirely separated from t he Assessment or ot her branches of t he Depart ment, and the valuers should be invested with the powers of sworn appraisers, against whose valuations there could be no appeal, except to the Valuation Appeal Board defined hereinafter.

Except as regards their conformit y to the existing law, the valuations of such persons should be free from any official criticism and should be t reated by the Department as final, if, after submitting any point t o them, they do not see their way to vary the valuation already made . by them. Where t he Commissioner is dissatisfied with such revision of a valuation, he may remit the matter t o t he Valuation Appeal Board, whose decision should be fimJ.

The Valuation Branch of the Department is represented in every St at e and, when valuations are required, its machinery could be made useful to ot her Commonwealth Departments. (Outside · the Taxat ion Depart ment, t he valuations could be treated as advisory only . The appropriate use of t he valuations of this branch would lead to economy as regards t ime, t ravelling, and other

expenses incurred valuing for such Departments. In. view of the continuity of the experience of land tax valuers, whose daily business is to appraise the value of land, the result arrived at would be probably more just than that reached by officers detailed at odd t imes to report as regards values. ) The Bureau should be under the immediate supervision of a Valuer-General, who would be in close relation with the Staff Valuer of each State, and whose direct supervision would insure uniformity in the principles of valuing. The office administration, however, should remain as heretofore in the hands of the Commissioner of Taxation.

It appears to the Commission that such a branch of the Department would come to be regarded as a purely professional division or section, and it deems it very desirable that, in any interview or discussion with a pastoralist--whether in the office or on hi s holding- the officer should be regarded as possessing the status solely of valuer- and t hus leave in the taxpayer's mind no ground whatever for any feeling of suspicion, whether just or unjust , that the officer meeting him was in any way interested in the collection of the tax, or that he was, to adopt the phrase of a witness, really a " tax gatherer " in the guise of a

In regard to valuation, your Commissioners feel that it is very desirable that any want of frankness between t he Department of Taxation and the t axpayer- a condition of things perhaps unavoidable as matters stand at present--should disappear. They are satisfied both from the evidence and from general considerations, that the creation of a Valuation Appeal Board, and thr

constitution recommended for the Valuation Branch of the Department will bring t his about, as the reasons for discussing the items of valuation other than in t he freest manner ought then to disappear.

SECTION IlL- EQUITABLENESS OF THE POLICY OF TAXATION.

1. THE EQUITABLENESS OF THE TAXATION OF CROWN LEASEHOLDs .- In § 6 of Section I. the equitableness of the taxation of Crown leaseholds was dealt with from a general point of view . . This matter will n.ow be more fully considered. Before treating the question in detail it may again be remarked that, from the stand-point of user, a Crown (or other) leaseholder is in respect

of t otal capital required in a position of some advantage ovec a freeholder, inasmuch

Commissioners are satisfied that, as regards the equitableness of t axation, the case is on all-fours

. 26

with that of freehold. Moreover, it does not depend upon actual quantity in use, or the value thereof, but only upon the value of the lessee's interest in th e land, which by section 22 of the Acts I nterpretation Act 1901 is included in the term "land" (for the purpose, inter alia, of the Land Tax Assessment Act). This will be more fully considered in § 2 hereinafter.

A suggestion. has been made that the taxation is dep endent upon the State not raising the rentals. Hence it is important t o notice that if the States were to raise the rentals to the percentage of the unimproved value adopted as the full economic rental the lessee's interest in the lease would be nil, and therefore he would not be subject to t axation. Probably in every prac­

tical case, however, the net result of thus raising the rental would be detrimental to the taxpayer. The whole matter is complicated by the fact that the principle of progressive-taxation applies, and there can, in the nature of the case, be no general illust.mt ion. It will suffice to indicate it by giving a table showing four teen examples with estate3 of different sizes, tenures, and rentals.

Example where unimproved value of the land leased is £20,000.

Unexpired Term,

Aggregat3 Unim-Taxablo Balanc•- Tax. proved Value.

- Ten Years. Twenty Years. Thirty Years.

--

Rental1 per cent. on unimproved value- £200 £ s. d. £ s. d. £ s. d.

A.- £20,000 £15,000 £135 Leasehold estate .. 5,662 0 0 9,308 0 0 11 ,657 0 0

Tax increased by Ill-elusion .. . . 65 1 1 97 18 0 115 6 1

Total payment (rent and tax) .. .. 265 1 1 297 18 0 315 6 1

If rent were 4l per

cent. he would pay 900 0 0 900 0· 0 900 0 0

B.- -£80,000 75,000 . £1,875 Leasehold estat e . . 5,662 0 0 9,308 0 0 11,657 0 0

Tax increased by

inGlusion .. 246 4 10 395 15 1 488 6 7

Total payment (rent and tax) .. .. 44 6 4 10 595 15 1 688 6 7

If rent were 4i per

cent. he would pay 900 0 0 900 0 0 900 0 0

Rental 3 per cent. of unimproved value- £600 A.- £20,000 £15,000 £135 Leasehold estate .. 2,427 0 0 3,989 0 -0 4,996 0 0

Tax increased by

inclusion .. .. 29 19 7 47 12 4 58 511

Total payment (rent and tax) . . .. 629 19 7 647 12 4 658 511

If rent were 4t per

cent. he would pay 900 0 0 900 0 0 900 0 0

B.- £8_ 0,000 £75,000 £1,875 Leasehold estate - .. 2,427 0 0 £3,989 0 0 £4,996 0 0

Tax increased by

inclusion .. 107 12 11 175 5 2 218 3 4

Total payment (rent and tax) . . .. 707 12 11 775 5 2 818 3 4

If rent were 4! per

I cent. he would pay 900 0 0 900 0 0 900 0 0

Rental 1 per cent. of unimproved value-

I Where t he estate is over £75,000 .. Leasehold estate . . . . . . 11 ,657 0 0 Tax increased by inclusion .. . . .. . . 524 11 4 Total payment (rent and tax) .. .. . . . . 724 11 4 If rent were 4t per cent. he would pay . . . . 900 0 0 Rental, 3 per cent. of unimproved value-Where the est ate is over £75,000 .. Leasehold estate . . . . . . 4,996 0 0 Tax increased by inclusion .. . . .. . . 224 16 5 Total payment (rent and tax) .. .. . . . . 824 16 5 If rent were 4t per cent. he would pay .. . . 900 0 0 -

-1053

. 27

2. CAN DISCRIMINATION BETWEEN TAXATION ON FREEHOLD AND LEASEHOLD BE JUSTIFIED? -As · pointed out in Section 1, a leaseholder has, other things being equal, cert1in advantages compared with a freeholder-considered more fully later- which may be defined :-- The freeholder's capital is expended in the purchase of the land, and he must recoup h1mself to the extent

of the interest on his capital outlay before he can tegard the property as yielding a profit, and he also must find capital for outlay in stock, plant, and improvements. A leaseholder, on the other hand, confines his capital outlay t o stock, plant, and improvements, which are common to both modes of tenure, and he must recoup himself for the rental which, in the case of Crown leaseholders, is

ordinarily sensibly less than the full market rental. It should also be noted that, if it be the full market rental, the leaseholder would pay no tax, while the freeholder would pay t ax. As, however, both leaseholder and freeholder are engaged in precisely the same industry (viz. , that of supplying the public requirements in the shape of cattle, sheep, wool, &c.), there seems to be no sufficientreason why one should pay a land tax and the other should escape such tax. There seems also to be no reasonable ground for marked discrimination in the favour of one who holds a lease from the 'Crown as against one who holds a lease from a freeholder. The national responsibility of the two,

in regard to taxation, would appear to be substantially identical. It cannot therefore be contended --as a general principle-that the one can equitably be excused taxation while the other is compelled to pay it. If the tax can be validated at all, it can at least be validated in both cases, unless indeed it is held that the Crown is justified in excusing the Crown leaseholder from taxation, in order to secure occupation of the land, or for some other sufficient reason ; whereas in the case of the fr eeholder the occupation has (presumably) already been established. This is the essence of the matter. .

It may also be observed that the land tax, as at present imposed, may, and as a matter of fa ct does, frequently press far more heavily on a lessee from a freeholder than on a Crown lessee, ifthe lease is entered into after the commencement of the Land Tax Assessment Act (17th November, 1910). A Crown lessee is always assessed as if his lease were entered into prior to that date. If a lea se from a freeholder is held under an agreement entered into after that date the holder is assessed upon the value of the economic rent of the land (estimated at 4! per cent. of the unimproved value) capitalized for the unexpired term of the lease without any deduction of reserved rent, onerous conditions, &c. Deductions from the total tax thus ascertained are then allowed to prevent double taxation since the freeholder also pays on the unimproved value of the land. Where such a leaseholder is the owner o£ a large aggregation of landed interests, the tax may even become a very serious matter, since the rate of tax is increased over the whole of his holdings.

3. ADVANTAGES OF THE LEASEHOLDER IN RESPECT OF TAXATION.-- Evidence was given in Queensland that leaseholds were sometimes preferred to freeholds (Q.3370, 3513- 14). The grounds of this preference are several. One is that, in the case of leaseholds, nearly the whole of one's capital is available for the developing of one's holding. Further, since the freehold is taxable on the full value, and the Crown leasehold is taxable only on the basis of the difference between the full economic rental and the rent reserved to the Crown, and the Crown pays no tax, the freeholder is at a disadvantage.

. Thus, let us assume the existence of two equivalent unimproved areas of equal potenti-one a freehold and the other a Crown leasehold- the unimproved freehold value of each

bemg £100,000; then if at the time interest on first class security is 5 per cent., the annual interest is thus £5,000, and the possessor of the freehold may be regarded as paying out that amount annually (in "perpetuity) by way of rent. · If the holding be leasehold its full economic rent is, say, also £5,000. A leaseholder who pays that amount is jTee of taxation under existing because his "interest in the· lease" is nil after such payment: Moreover, if both had

onginally £100,000, the freeholder bas only what he can raise on the property for its development, while the first year's rent being paid the leaseholder bas £95,000 for that purpose, &c. Taking the tax as at present about £2,774, the freeholder is worse off than the leaseholder by approximately this amount,*

By the Land Tax Assessment Act of November, 1910, leases from the Crown were exempt from land tax, those with a right of purchase and perpetual leases being, however, excepted: The amendment of this Act in December, 1914, operated so as to make the taxation include any leases of land to be used for pastoral, grazing, or cultivation purposes, homestead leases, mining leases, and timber leases (see section 29). Leaving out minor considerations as to the. difference

between leases entered into before or after the commencement of the original Act , it may be pointed out that, in general, the Crown lessee is in a very favorable position indeed as compared with the freeholder. On the other band, a le-ssee who leases from a freeholder after the commencement of the original Act may or may not get some relief accordingly ds the freeholder does or does not pay tax, the general object being not to doubly tax the land. In the cast. o£ a lessee from the Crown he can get no such relief, forasmuch as the Crown does not pay tax, and therefore his intuest is always calculated as if his leases were entered into prior to the

commencement of the Act, i.e., under section 28. As a result he is in a much more favorable position than the freeholder, while he may be in a more or less favorable position than the lessee from a freeholder. · " .

• If the rent is pay&ble at tho end of tho term the advanh11e II £2,774; !I at the be;innlnll, £2,52,,

28

If a lessee from the Crown has other landed interests of large value, it is usually a distinct advantage to hiru to have the value of his lease calculated under sectio_ n 28 . The position ot affairs is therefore this: that initially Crown leaseholder was not taxed at all (except in the case of perpetual.leases and leases with a right of purchase) and, compared with the freeholder, therefore in a distinctly favorable position, especially in view of the progressive fonn of the tax.

Even after the 1914 amendment the Crown leaseholder still remained in a very favorable position, inasmuch as virtually his estate in the lease is valued by capitaJ izing th\j difference between the Crown rental and the fair economic rental, which difference may be very small or even nil. Thus, apart from other phases of the question of State inducements to secure occupation, ihe tendency of t he present taxation law will probably be to popularize leasehold as compared with freehold, and to this extent will operate to diminish the total t ax derivable from lands .

. Another advant age which the has over the freeholder is the ease with which

he can abandon -his holding. In the remote and poorer class of areas, viz., those which have only small rainfall an_ d which are subject to droughts, to invasions by wild dogs, &c ., the Crown lessee would have a distinct advantage over the . freeholder., inasn1uch as in a time of abnormal stnss he could abandon his holding, whereas the freeholder's property could not be disposed of satisfactorily at such a time, and he would be not ·only " out of his capital " but liable also to any burden imposed thereon. (See also Q. 3370, &c ., and remarks on previous page.) In this connexion it is proper t o remark that, generally speaking, the better lands in districts characterized by a good rainfall are freeholds, and the less favoured lands where the rainfall is sparse and irregular are held under leasehold. ..

4. APPARENTLY ANOMALOUS NATURE OF THE EXISTING SYSTEM OF LEASEHOLD TAXATION.­ From the point of view above indicated, it is o.bvious that the principle of taxing a leaseholder is consistent with what appears to be the general purpose of the Tax Assessment Act. R.everting to the example previously given, us suppose that two properties with an unimproved

value of £100,000 are of identical value for grazing purposes, the one being freehold and the other ·leasehold. In such a case the freeholder and the leaseholder are in an identical financial position when the latt0r has paid out his £5,000 rental, this being the full economic rent in the case supposed. Excluding as irrelevant to our im1nediate purpose all minor considerations of adjustments for

improvements and rent als, interests, &c., repr€sented by such adjustments, t he t wo land-holders are in an equally favorable position for the production of income from the properties . To n1aintain their equivalence t hey should be taxed equally, that is, each should pay thetax of, say, about £2,774. Under the existing system, however, since the leaseholder ex hypothesi pays the full ec onoinic rent,

his t axable interest is deemed to be nothing, and he consequently gets the use of the land for pastoral purpot: es on Inorefavorableterms than the freeholder by nearly the whole an1ount of the t ax borne by t he freeholder. It is, of course, conceivable that such a system of taxation could be justified, and a public policy ot this sort be defended on various grounds, e.g.> on the ground of promoting leasehold tenures as against freehold tenures. It is difficult, however, to see in what other way it could be regarded as equitable.

The evidence taken both in and Brisbane (Q. 1442 and 3370, &c.) shffi",\Ted that this ?jdvantage of a leasehold tenure is recognised; and tends to confirm the view that there is no sufficient reason for exempting a pastoral leaseholder from t axation. Not only is he engaged, as already stated, in exactly t he same industry as t he pastoral freeholder, with the great advantage, by having the of acquiring the land by leasehold, of being relieved from large capital

expenditures, he haJs also the advantages just referred to. 5. SHOULD THE CROWN LE ASEHOLDER BE EXEMPT FROM PROGRESSIVE TAXATION?­ Since it is-- at least in so me cases--possible to make the of small areas more efficient

than that of large ones, and the areas more productive, the pastoralleaseholder-in the opinion of your Commissioners-- should not be wholly exempt frmn progressive taxation. This opinion is supported by the eviden?e as to the experience of Queensland : higher can be obtained-other things being equal- In the case of small areas. It is. certain, however, that this experience cannot be gen eral, and it is .not applicable to the" outback" country, such, for example, as the back country

of South Austraha. 6. OF THE CONFLICT OF VARIOUS preceding considerations

show that, If we have regard only to taxation needs-apart from questions of land settlement policies- it would appear that Crown leases should be taxed, not upon the value· obtained by capitalizing the difference between the rent reserved to the Crown and the full economic rental, but upon the unim_proved value, an allowance for the reserved rental and perhaps special allowances for varwus onerous conditions, alre-ady considered, or otherwise. But inasmuch as this no would, often cause .extreme hardship in the case of dro.ug.ht,- fire,

and otner disasters, It IS necessary to consider whether the land tax under existing conditions . seriously tends to operate against State policy in regard. to settlement. · ·

Having considered the carefully, your Con1missioners are of opinion that the best test of the degree of the hardship IS that based upon the net income made from the property in question. If the amount of profit after .the deduction of taxes is relatively . large compared with the rental, it is prima facie. evidence ·that the taxation is not grievous. If, on the ·other hand, the virtual increase on the rental (represented by adding the taxation) be large,

1655

29

the effect would probably ·be to hinder occupation, and to cause the lands torevert back to the Crown. Since this would also tend to intensify troubles from pests, it would be detrimental to the national interest generally, and particularly to the State interest s. ·

Two methods of remedying the condition of affairs sugge·st themselves, one based upon the general character of the land having to. climatic and other influences, and the is that based .upon the profits made therefrom as IndiCated above. It would that the

latter course presents less the would not only be difficult, It

be liable to create great anomalies, for the profits, at times, may be very large on lands ordinarJly subject to drought. w_e have also to remember that, !n the case of subject to great

vicissitudes, the profits must be large to compensate for the great danger of disaster. · It is important that this point should be clearly stated. If, for example, the net profits from a Crown leasehold were, say, 20 per cent., and the taxation was, say, 10 per cent. of this amount of 20 per cent., it would mean a reduction of the profits from 20 per cent. to 18 per cent. Such a reduction would be relatively inconsiderable and could not consistently be alleged to be a serious hardship. For example, if on £100,000 invested a net profit of £20,000 be made, and the .

taxation was 10 per cent. of this amount, viz., £2,000, the net profit would be reduced to £18,000, which relatively is not much ·lower than the original net profit-0·· 9 compared with 1 · 0. For this reason your Commissioners consider that the absolute amounts of the net profits derived from Crown leaseholds should be considered in connexion with any plan for rernission of tax on ·the ground of hardship, disaster, &c. Consequently, income-tax returns should invariably be

available for consideration by the Remission Board in connexion ·with all applications for remissions · of tax. It may finally be added that the question is not so much whether .the rate of profit on the capital invested is large, as whether the relief sought is in appreciable proportion to the absolute net profits made from the leasehold.

7. TAXATION OF LAND REGARDED AS A TAX ON THE SOURCE OF PRODUCTION. - ln t he evidence given the opinion was expressed that taxation of the sources of production is economically unsound, and that legislation which gives effect thereto is inherently bad. (Q. 2049, 2463A.) . This was urged as a fundamental objection to the t axation, inter alia, of both pastoral leaseholds and fre eholds. It applies equally, of course, to all taxation of land, and to any form of

wealth having an exchange-value. In its general form the question has been widely discussed forasmuch as tax must always be paid out of income, if some portion of the wealth itself is not to be converted into t he form of money and thus pass into other hands. Thus, it is urged (from the stand-point of economics), only in the most exceptional circumstances ought a tax on wealth itself to be imposed, since such a proceeding tends to destroy taxation at its source. ·

The above question is, however, not remitted .to your Commissioners . . It may, however, be noted that all commodities :which auton1atically increase in value, through increased communal demand or through t he lapse of time, may properly be regarded as analogous in this respect, viz., that taxation would apparently tend to promote a reasonably productive use of them, and would hinder their being held merely in order to get the benefit of the "unearned increment." Land itself falls into such a category·. Thus a land tax tends to compel the effective use of land, ·and a progressive land tax tends to secure increasing efficiency in the use of large areas. Admitting, therefore, that the principle of taxing any form of wealth,. which constitutes a source of production, can presumably be defended economically either on the ground of sheer necessity only or on· the ground of compelling t he efficient use of such wealth (by preventing, for example, its being held for merely speculative ends, or for the accession ·of the unearned increment), there would appear to be no sufficient reason for treating leasehold differently ·to freehold unless the above reasons cease to be applicable. Moreover, if, merely for reasons of national urgency, taxes were perforce placed upon fre eholds, it seems self-evident that there should also be a tax on leaseholds. A consideration of the question of whether the lease is from the Crown or otherwise goes to show the former can bear a tax, based, say, upon freehold values, even better than latter,

smce the Crown is in a position to lease on the most liberal terms. But this raises again the question whether there is a necessary collision of interest between the State and Commonwealth. In so far as the State has a real difficulty in getting lands settled, the policy of taxation, particularly of progressive taxation, would appear to be in some sort of direct conflict with State policy,

If such taxation could farily be regarded as oppressive.

8. APPARENT CoNFLICT WITH STATE PoLICY. - It has been argued that if, in order to prornote the occupation of waste lands, any State offers them at a low rental, an annual Commonwealth taxation of Crown leases of such lands is virtually in conflict with the State policy (see, for example, theevidenceofthechairmanandamem.berofthe vVesternLands Board-Q. 2485 A and 2619 ). Thus, from one point of view, there would appear unquestionably to be a possibility of a clash of interests as between Commonwealth and State. That clash, however, is seen 'to be not rrwre fundamental than in the case of taxation on freehold, when it is borne in mind that, since the amount of bearable

taxation is necessarily limited, taxation by any paramount authority, necessarily also limits that to any other authority. This, however, is a fU?damental political question, already '

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upon, and is not remitted to your evertheless, your Commissi.oners

feel it proper to observe that the reasons whiCh · JUstify taxation upon freehol,d are. practiCally equally applicable to leasehold, especially when allowance can be made for hardships, disasters, &c. 9. ALLEGEDlNTERFERENC:FJ WITH STATE RIGHTs.-Several witnesses laid stress on this aspect of the Federal ]and tax on Crown leases. The question of its legality has, however, been considered and dealt with .by the High Court. Further discussion on the point appears to be futile, especially when it is remembered that permission to appeal against the that the tax was was

refused by the Privy Council. It is not necessary to set out in detail the ground on WhiCh the appellants (Goldsbrough, Mort, Co. Ltd. and. the for the of

Queensland) relied, but the following remarks made In the course of JUdgment are pertinent to the issues to be decided by this Commission:-GRIFFITH, C.J.- " I am unable to entertain any serious doubt upon any of the points which we are called upon to decide.

Section 28 of the Land Tax Assessment Act is on its face an attempt to define the value of the term created by the ]ease, which is the supject of taxation. . . . . It .appears to be tb.at ;plain and purpose of this

enactment is that the lessee shall pay land tax upon and accordmg to the value of h1s mterest m the land, and that as such it forms a natural part of a scheme of general land taxation."

The Chief Justice mentioned that it had been ·said that the imposition of a land tax on such leaseholds would in effect discourage their acquisition, and that that was the real design and purpose of the Act. . This co?tention, however, did not deem worthy. of. comment than that expressed in the preceding paragraph of this summary (see words 1n Itahcs).

"A subsidiary point raised was that the rule for assessing the taxable value o(leases, as applied to Crown leases under which the lessee has limited rights of user of the land, would operate to make the taxable value of the term much greater than its real value. . .. . . . I am strongly disposed to think that when the Act says, as it does, that

the lessee is to be deemed to be the owner of a like estate in land of the same value, it is implied that the 'land' of which he is deemed to be the owner means land subject by law to the same disabilities or, it may be said, struck with the same qualified sterility as that of which he is the lessee. If that is so there is no foundation for the objection. . . . . . The taxation impeached cannot be regarded in any relevant sense as an interference with any legislative or executive power of the States." .

IsAACS, J.-" Interference with State functions. . . . ·. The central point relevant to this objection is this, that the land tax is general, and so far as its terms are concerned, any exceptions have to be found specified. . . . Everybody is, prima facie, taxed as owner in respect of the 'land .' he owns." (N.B.-Under the Acts Interpretation Act 1901, section 22, 'land' includes 'interest in land,' e.g., leasehold interest.) "At first" (i.e., under the 1910 Act) " the State origin pf property was as to them a ' discrimon ' of taxation_:_now it has ceased to be-but it has not become a standard or a special reason for taxation.. . , . . . If a Crown lessee is a State instrumentality for developmental purposes so is a Crown purchaser. But for the earnestness with which the view was pressed I should have thought it incapable of serious presentment." (The italics ate your Commissioners' only.) ". . . . . It was said to be in effect equivalent

to a statement that if a citizen of the State were to desire to lease land from the Crown he would be mevertted from giving so much, and the S!ate would be prevented from receiving so much, as if the threatening declar;tion" (i.e., the land tax) "were absent. There is no substance whatever in the distinction. . . . . . In no sense is State property made subject to the tax." ·

Justice Higgins, substantially, and Justices Duffy, Powers, and Rich concurred. 10. IMPORTANCE OF NOT OVERLOADING THE CROWN LEASEHOLDER WITH BURDENS.-The crux of the whole question is this :_-In the case of a Crown leasehold used for pastoralist purposes there are great risks of loss in the Australian c1imate, and the States, recognising this, have endeavoured to induce occupation by granting easy conditions of tenure. When seasons are good t_hese conditions appear to be unduly easy, especially when the great amount of wealth (see table in Q. 3126), then derived from the occupation of the. land, is taken into account. This derived wealth, being subject to income tax pays on the higher scales of the progressive tax, and when this is borne in mind, the apparently unduly easy nature of the conditions does not appear in the same unfavorable light. · Moreover; when the profit and loss account is made out over a considerable period of time, the ratio of profit is not so striking, and in some cases even becomes negligible.

Bearing in mind the great risks of the occupation, it is not unduly large excepting in exceptional seasons. There can be no doubt that the fact that large profits are possible is the explanation of persons being willing to accept the risks of the occupation, and as, in case of success5 they are taxed on the higher scales as income, the question arises whether they should be taxed on the progressive scale of the land tax or should be exempt from its operation. -

There is evidence that the rental is low, and, although a sufficient period of time has not yet elapsed to fully test the matter, it appears that when held in smaller areas (e.g., "grazing areas" in Queynsland- see Q. 2980) not only is a larger rent obtainable, but also more persons are settled upon the land ; a state of things which, if enduring, is clearly in the national interest.

On the other hand, the fact that any responsible government is prepared to , repudiate a .condition entered into by its predecessor, on any other ground than fraud, raises in the mind 9£ those interested the question of the real extent· of their jeopardy. Thus the Queensland "Bill to further amend the Land Act of 1910jn certain particulars" proposed in section 2 to vary the

condition as to limitation of the power to raise the annual rental (see Exhibit "B ,; of the evidence). This power no:w exists as regards leases, but is not retrospective.

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It is self-evident that a prudent man must insure himself .against acts of repudiation of conditions of tenure not only if they are of n1oment, but also in so far as they reflect a change of the sense of obligation as beotween responsible governments and th.eir in _office: The net effect of this Act is to make the value of any tenure very uncertain, Inasmuch as In good seasons, with a Treasurer's necessities large, the extent to which the rent would be raised is a quantity which cannot be accurately foreseen.

11. TAXATION OF CoMPANIES.-It has been contended that the holdings of companies sh.ould not be subject to the principle of aggregation (see Q. 626, 1782, &c.). It would appear .. reasonable that, in all cases where a number of persons, instead ofworking their individual holdings separately, combine to then1 .conjointly (i. e., as ?ne holding), the ordinary applying to companies not put Into op era.twn them. In. the .of

Taxation Act It IS recognised there Is a definite legal way In whwh the operatwns of the progressive element in the taxation can, in the case of partnerships, in future be ·avoided (see Q. 3922). The representative of the New Zealand and Australian Land Co. Ltd. (see Q. 1782, &c.), one of the largest landholders in Australia, urged that the principle of non­ aggregation should be applied to company holdings generally, that is, the conditions for such a company should be identical with the case of landholders working the aggregate of the holdings in common after. taking the necessary steps to exclude the land owned by the partners individually from the assets of the partnership (the legal way in which the progressive tax can in future be reduced to the case of individual ownership).

On the other hand, another large holder, who is both a large individual leaseholder and also a shareholder in _ many land-owning cmnpanies, gave evidence (Q. 1349) that he saw no reason why companies should not be assessed as individuals. ·

·In these days of proprietary companies, with few shareholders and large interests, any argument that can be used in favour of special land tax concessions to companies applies probably with equal force to A concession of this nature would open the way to easy evasion of the law. Any large individual owner could escape full taxation by the formation of several small companies in each of which he was the only real shareholder, the others, or the majority of them, being really dlimmies, e.g., t he members of his family.

With regard to the general taxation of companies it also may be noted that, for income tax purposes, companies are assessed only on their undistributed income at a fiat rate of 2s. 6d. in the-£1, and each individual shareholder is assessed on the dividends paid to him at the rate applicable to his total income. ,,

With regard to the land t axation of companies, the ordinary principles should, in the opinion of your Commissioners, undoubtedly apply. In so far as large holdings are concerned, they may in all respects be regarded as subject to identical considerations whether they belong to a company or to an individual. The company may certainly comprise many shareholders whose share in the income is small, but nevertheless the lanq is usually only actually physically occupied by a manager and a small staff: Thus, under . the pressure of a severe land tax, large properties held in this manner would tend to be forced to subdivision, and thus the land will tend to be occupied by more or less numerous small holders. It ought, however, to be noted, as regards Crown leases, that where these are not capable of being worked in areas this would not apply. But in this respect it applies with no greater force than t o individual holders, and thus no special concession to companies (as opposed to individuals) can be justified on the general principles on which the land tax is apparently based. And were any concession made, it would be necessary to carefully limit its operation so that it should not apply to companies which are to all intents and purposes partnerships that have sought the advantages of incorporation. It should be added that in the case of pastoral companies it may well happen that though the shareholders are many, the major part of the income n1ay, after all, be received by the large holders .

. Progressive taxation t ends, to some extent, to limit the size of holdings, which may or may not be advantageous, according t o the physical and other characters of the holdings themselves. Where it is desirable to encourage the occupation of pastoral lands in large areas, then a progressive tax on the aggregation system is justifiable neither in the case of an individual nor in that of a company; but there would appear to be no satisfactory ground for discriminating in the favour of a company. The other aspects of the matter are elsewhere dealt with.

12. SusPENSION OF CoLLECTION oF TAx AND THK PRovrsroNs oF SEcTION 66, LAND TAx AssESSMENT AcT.- Although assessments have been made by the Taxation Office in respect of leaseholds, no tax has been collected in a great nun1ber of cases, nor have the

assessments been received by the t axpayers. Thus the taxpayers are to

some extent in ignorance of the effect of the tax on them. Complaint was

made by pastoralists that, although applications have been made by taxpayers to

be allowed the relief provided for in section 66 of the Land Tax Assessment _Act 1910- 16, for actual losses through drought, &c., such applications had simply been declined, even though ' ' the loss_es were indisputable. It is practically certain that many such applications will be made when assessment notices have been issued. This section of the Act is, in the opinion of the

Commission, a necessary provision to meet the disabilities and risks of loss in _ the :ind1.ifttry, and it is evident that, after full inquiry, its provisions should be carefully, fairly, and, Indeed

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sympathetically administered. Grievous loss of stock-and _ consequent deprivation of income­ is a sufficiently grave discouragement, without the leaseholder being cctlled upon to pay the land tax in years of drought and disaster, and, in the opinion of the Commissjon, the remission should always operate in bond fide cases. · .

_13. REMISSION, BUT NOT .SUSPENSION, OF T4-X DESIRABLE IN- CERTAIN CASES.-Your Commissioners are strongly of opinion that, in the case of disaster, payment of tax should be remitted; that is, either the whole of the tax or part thereof, but that it is undesirable to merely postpone the payment of the tax till a good season occurs. The holding of this liability over a Crown leasehold greatly discounts its value if the leaseholder wishes to dispose of it. Moreover,

taxation should, from its essential nature, have regard only to the realized past, and should not be based upon a possibility of a favorable future contingency. · . .

.14. BoARD FOR THE REMISSION OF TAx.-In regard to this remission, in certain specified cases of hardship, occurring by reason of adverse conditions, the existing Act constitutes this Board as follows:- ·

(1) The Commissioner of Taxation, (2) Secretary to the Treasury, and (3) The of Customs.

. It makes the Com.missioner of Taxation the Chairman, and requires that the Board's decisions, determined by majority, must be laid by the Minister before both Houses of Parliament as soon as possible after the close of the financial year, accompanied by a full statement of the grounds upon which liability has been released -in each case. Inasmuch as the point of view of

the Chairman ought always to be the obtaining of the full tax due (though having regard to all the circumstances of the case), it is eminently desirable that it should be publicly obvious that his colleagues are of a perfectly neutral character, and, moreover, they should have the· fullest opportunity of independently reviewing the whole of the data on which recommendations for remission are founded. To do this would require a continuity of attention and experience somewhat foreign to the daily experience of the existing Board, the members of which are very

busy 1nen. In the nature of the case there is, moreover, a danger of interested parties assuming that the members associated with the Commissioner are unlikely to have adequate time at their disposal to make independent studies of the necessary particulars. Again, from the public point of view, it _ has also to be re1nembered that the Land Tax Office is officially associated with the Treasury, the Secretary of which latter is, by the Public Service Act, the Permanent Head of the Department of the Treasury. In regard to the other member it be borne in mind that the duties of the Comptroller-General of Custon1s are engrossing, and are also connected with. taxation, and his work n1ust always fully occupy him. Your Commissioners therefore apprehend from the tone of t he evidence that, under the existing practice, interested parties may be apt to think that the real adjudicator is de facto the Commissioner ·of Taxation, an impression which, however ill-founded, deserves to be removed. ·

Your Commissioners are of opinion that by constituting, as indicated hereunder, the Board for the Remission of Tax, these difficulties will be removed, and they advise therefore·the following procedure, not only with a view to relieving the two members of the Board who now act with the Taxation Commissioner of an onerous duty, but also to insure that the Board shall more strongly

con1mend itself to the public in respect of its neutrality. In saying this, it is not in any way implied that the present Board has failed to fully appreciate its responsibility. What is implied is that the taHks assigned are not as appropriate to its constitution as they would be to the Board recom­ mended hereunder.

The Commissioner should be empowered, acting in his sole discretion, to remit, on the application of the taxpayer, the whole or any part of the tax When, however, for any reason whatsoever, the Commissioner is not prepared to remit the whole or any part of the tax as asked for by or as acceptable to the taxpayer, the case should be remitted to a Board of three consisting of the Commissioner of Taxation, Chairman, and two members of the Valuation Appeal Board (the appointment of which is elsewhere suggested), or to ·other suitable persons

appointed by the Commonwealth, but not to include the member of the Board representing the taxpayers. The reason for exclusion of the latter is that the remission of the tax should be regarded as an act of grace on the part of the authorities, and the Govern1nent s-hould in a measure have some control of it and be in a position to act in the same manner as a landlord might towards his tenant

on occasions of distress or loss. . . . .

It may be mentioned that the Commissioner of Taxation in his evidence (see Q, 3943) expressed hin1self as favorable to the appointment of a Board constituted on these lines. · The creation of such a body should entail practically no expense to . the Commonwealth. The evidence to be considered would probably, in ordinary cases, be of a documentary character only. On this Board each member should have one vote only, and the decision · should be by majority, the Board having power to remit whole or any part of the tax, but it should not, in the opinion of your Commissioners, have power to postpone the'payment of the tax. This latter power should lie with the Commissioner of Taxation himself for reasons -which are deemed satisfactory by him.

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15. AssESSMENT OF THE TAx ON THE BAsis OF THE , RENT FIXED BY THE STATE.-Since . the rent reserved . to the Crown might be presumed either to be the full economic rent or to bear at least a sensible ratio thereto, it has been suggested that it might be made the basis of the taxa­ tion. In many cases, however, the rent fixed by the State was levied on leases having in some cases a currency of over 40 years. In many cases, also, a limitation also of the aniount by which such rent could be increased at stated interva]s was imposed. It might happen that the rent charged was a one at th.e date of the commencement of the but as · elapses

circumstances nught occur winch subsequently would show that the original rent was Inadequate. The effect of the present law i_ s to make the lessee pay in the combined rent to the State and in tax to the Commonwealth an amount per annum which more nearly approaQhes a fair market rate of rent. The State Government would, at in some cases, appear to have fixed the rent at a low rate for the purpose of .inducing occupation, and the Commission does not see its way therefore to recommend the adoption of the rent in the lease as in any way a suitable basis for the tax, or as in any way a satisfactory basis for ascertaining the value of the lessee's interest in the lease. Moreover, that there is n0 necessary connexion with the rents paid and · the Land . Tax, as assessed, is shown by the following fifteen examples from Queensland returns

for pastoraJists using leasehold lands only :- . J . ·

- A. B. c. D. E. F. G. H. I. J. K. L. M. N. 0.

-- ------------ - --- - ---- ----- -£ £ £ £ £ £ £ £ £ £ £ £ £ £ £ Rent· . . .. 689 487 220 520 465 1,377 777 738 131 520 246 650 193 2,165 865 Tax* . . .. 62 13 30 498 1,120 338 452 292 17 121 55 64 16 908 134 - * Expressed to nearest £1. The effect of arriving at taxable v-alue by a capitalization of Crown rent would be that the lessee who paid a high rent would have t·o pay a correspondingly high tax which is the reverse of the correct position. . · 16. Is THE LAND TAx ON CROWN LEASEH'OLDS BuRDENSOME available data your Commissioners are satisfied that, on the whole, the Crown leaseholders are not subject to greater hardships than freeholders in regard to land taxation. See, for example, the table in Q. 3126, which shows for ordinary taxpayers of Queensland the following, viz. :-·- 1914. . 1915. 1916. 1917 . 1918. -Number of pastoralists t' . 2,152 2,258 1,826 2,522 3,193 . . . . .. Income tax paid J £105,647 £116,105 £157,457 £231,013 · £329,142 . . .. . . . And show for compan{es-Number of companies .. . . . . 57 . 57 51 63 61 Income tax paid . . .. . . . . £45,272 £62,065 £68,855 £78,376 £96,274 In Brisbane evidence was given (H. D. Brennan, see Q. 2760) that although only one-sixteenth of the country lands of Queensland was alienated, yet the owners of those lands paid in State land tax in 1917, £320,000 or more. This is more than the amount paid by pastoral lessees in rent, although they held a much larger area. The rent actually paid was £308,000. This means that, although the freeholders have had to buy.the land, they still pay more per annum to the Government in respect of their land than those who have no other financial obligations to the Crown in respect of their land than payment of rent. The area of alienated lands and lands in process of alienation in Queensland is 26,885,676 acres. The area held 1,inder pastoral leases is 211,581,200, or about eight times as great. In connexion with this, it may be noted that Mr. T. S. Hulme gave evidence (Q. 2696) that a very large proportion of leasehold land in Queensland was in every way equal in quality to freehold, and some indication of the profits of the pastoral industry in that State for the year 1918 appeared in the evidence (Q. 3126) that out of the total income tax of £580,165 paid by the total number of 28,496 ordinary taxpayers, the total pastoralists among them.---:-3,193-paid £329,142. . A table submitted by Mr. A. F. Twine, Assistant Commissioner of Taxation (see Q. 3553), for the purpose of questioning the _ assertion that the pastoral industry associated with pastoral leases would be prejudiced if the leaseholders were called upon to pay Federal land tax, sets forth that the additional tax payable on Crown leases in each State on account of their association with freehold . works out, for the whole Commonwealth, as equivalent to 0 ·16 of a penny per acre, or, say, 8s. 6d. per square mile. This shows how small comparatively is the amount of taxation. When account is taken of the fact that cases of disaster and hardship may be dealt with by a Board for the remission of tax, it is evident that the taxation on Crown leases does not press unduly hardly on the leaseholders. This is based on the estimate that the additional tax realized and due to inclusion of lessees' estate in the assessment of both classes of tenure is £189,820, but later on the Commissioner of Taxation in his evidence gave an amended estimate of approximately£250,000. This, lfowever, will not sensibly affect the above estimate. I < F.5424.-3 - .

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SECTION QUESTIONS.

1. GE NERAL.-There remain a number of somewhat generaJ matters affecting the questions remitted to your Commissioners, which it will be appropriate to consider here. The question of a Board for t he Remission of Tax has already been dealt with (see Section III., § 14), and need not again be referred to.

2. VALUES AFFECTED BY RES UMPTION AND RENT REAPPRAISEMENT CoNDITIONS.- By contrasting a lease in which there are no conditions as to resumption with one in

which such conditions exist, it is easy to see that the value is affected, and consequently also the taxation should be diff erent in the two cases. Where portions of leases

are liable to resumption t he question of the proper mode .of valuation of course The ·matter is not an· easy one, however, to deal with. One leaseholder claimed

that from the dat e the St ate Government .had under the terms of his lease power to resume, there should be no taxation on the portion of his holding which was liable to be resumed," even though such power were never exercised, inasmuch as in such a case the tenure is really from day to day after the date on which t he power to resume can be exercised. By the Land Tax Assessment Act any lease the tenure of which is not more than one year is not to ta.xation.. It seem therefore that, where the power to resume at or after a certain date thiS prinCiple should apply a f ortiori, that is, the land should be regarded for the purposes of taxation as not even on a par with leases for less t han a year which, as said, are not taxable.

-Obviously the State Government which imposes such a condition of tenure could hardly equitably ·claim to benefit by wholly ignoring it when fixing the rent, for it is clearly a limitation to the tenure, which limitation must be reflected in the value of the lease. The Commonwealth, however, is not quite in the same position, and is equitably concerned more qirectly with the actual facts of the tenure than with the State res:umption rights.

Practically every Qu eensland pastoral lease reserves to the Government this power of resumption, but, t hrough the character of the country and its remoteness from civilization, &c., in a very large· number of cases no portion is likely to be resumed for closer settlement for obvious · Thus: in effect, -what might be regarded as a detrimental resumption clause in any

ordinary lease would in actual practice in the class o'f lease referred to-Crown leaseholds-prove . a. great advantage if the part which was due for resumption, but which was not resumed, were non-taxable; the resumption clause would operate to reduce not only the rental but also the taxation. To the extent to which this liability does not actually affect . the occupation

the resumable area virtually remains an integral part of the whole lease, and, with this limitation, just as much so aft er the date at which it may be ;resumed as it was

before that date. From t his point of view it would appear to be quite.·equitable on the whole, but not necessarily in an individual case, if the part resumable were supposed to possess some, but not full, value. Your Commissioners are of opinion that the Taxation-Commissioner's practice of treating it as though the right of resumption did not exist is inequitable. His past practice of affording relief only when t he act ual resumption takes place does not go far This practice

(of the Commissioner) of making allowance by reviewing and amending all the assessments back to the first year of taxation is not only not a sufficient and certain relief, but involves also a very large amount of computation indeed, and this fact has eyidently been impressed upon the mind of t_he Taxation Commissioner himself. To meet the difficulty your Commissioners recommend that the action taken be in accord wit h the spirit of the suggestion of the Commissioner of Taxation in his evidence (Q . 3836), but not in accordance with. the letter of his suggestion . . He says-

. I would be prepared to recommend an amendment of the law to provide that the tenure of that portion of the lease which is liable to resumption without compensation should be deemed to cease upon the date when the liability to resumpt ion materializes, and that if the lessee continues in of that portion after that date he should be regarded .as occupying i t on sufferance. At t he present the Department deems him -to have a lease for the full period for which the lease was granted, subject t o an amendment of the assessment.s for past years, so as to calculate the lessee's estate in any resumed area fo r period during which he actually occupied it. The reason for this 'practice was that information was given to my predeeessor to show that in very many instances the Crown never exercised its power of resumption. I think the present departmental practice should continue in the case of liability to resumption with compensation. ·

To attempt- on s01ne or even av_ erage basis- to assign a value to the resumable area would, of course, be to penalize one leaseholder and to treat another with undue liberality. In th·e opinion of your Commissioners it is better, however, not wholly to forego the uncertain and doubtless equitable claim to t ax merely because of the fact that there is undoubtedly some, though a non-determinable, value to be ascribed to the lessee's interest in the resumable area over and above that represented by the term of assured tenure. Your Commissioners, therefore, while indorsing­ the opinion of the Commissioner of Taxation expressed above, cannot recommend that, in its present form, it be given effect. In the opinion of your Commissioners it would be better to allow

for re·sumption rights as a disability in the same way as allowances are made for other disabilities in the system of valuation already referred to. · This ·disability would operate to reduce value

fi 061

·of the lessee's interest," and this. could be allowed for on the.principle of local averages as to tenure, &c., and be determined by the Valuation Bra:nch. Jn this case, wh!le it is true that holders would, as said. above, pay an excessive and some a defective amount. of thiS would be only in respect of the tax for t.he years up to the date of actual resnmptwn. It better, for self-evident reasons, to have a defimte settlement as to the tax payable. The hardship would be and would be negligible in comparison with taxation based merely on the value of the land occupied, allowing onlr fo! .rental paid. . . . · . . .

In leases where there IS a liabihty to resumption with compensation, your Comnnsswners are satisfied that, since the compensation appears to include the amount " payable to the lessee of the Crown for any resumption" (see the Land Acts, Queensland, 1910 to 1918,· section 153), the Taxation Commissioner's recommendation that his present practice be continued in these cases seems to be fully justified. · . · · .

. · The depreciation of a leasehold interest to. the liability of Crown to rea:e­

praisement of rental be accurately the amount reappraisement 1s

uncertain. Nevertheless, In a somewhat arbitrary way, the fact of the hab1hty can be roughly taken into account when fixing the -unin1proved value of the leasehold land on a freehold basis, because the past history of leaseholds may be regarded as giving a !'ough guide, as to their prob­ able future in this respect. Hence sorp_ewhat similar _ remarks apply as in the case of resumption,

and the liability of reappraisement will then be reflected in the estimation of the full rental value of the land (C"alculated at 4t per cent. on the reduced unimproved valqe). 3. FOR lN]jFFECTIVE question ha.s alrea.dy been touched

but it is considered some reteren.:;e is desirable. In his evidence it was

stated by the Co:rp.missioner of Taxation that f9r deduction for ineffective improvements was only a of proper valuat!o:n fln..cl ·4is based upon a case

where the useless expenditure is to foo!ish pr o:r unscientific effort. In .so far as such is ad4ered to, your of opinion t4at it must he regarded as conflicting

with the State's effort to get people settled on the JFtnd. It may be a§sumed that, generally speaking, large expenditures are not and that reasonable care is exercised

in attempting improvements which affect the carrying capacity of land for stock. The State, therefore, on the one hand, induces by CQII-ditiqns which lead people to accept large risks and to undertake such expensive operations as pprip.g, sinking, &c., it being well known that in many cases it will be a failq.re. Essentially there is no difference in the finding, say, of water in a deep bore costing-let suppose-£5,000, or a sf3ries of shallow bores costing also the same amount, only one of which, however, is a success; ap_d the policy of the Commissioner of Taxation in refusing to recognise all but one of the bores,. and that only at its cost of construction, in the

one case, and allowing for the whole in the deep bore, on the other, shows at once

that the of t}le case is allowed to -becorp_e to the policy of bringing about occupation. Irhe is not already so empowered, the shop..ld be empowered by way of concession to make full allowance for all expenditures on bo:res, &c., that have proved failures, this allowance being made, of course, only in the case of the person incp.rring the expenditure, but not to his successor in title. The question· of in the of other impi:ovements of like nature,

.following consequentially the same principle, could be considered by the Commissioner of Taxation on its merits. In this connexion it should be noted that allowances of this kind must be ·made with great caution.. The Commission had much evidence to show that it happened frequently that a lessee in his search for an artesian water supply made many unsuccessful attempts before his efforts WBre crowned with success. Witnesses claimed that these unsuccessful bores should be allowed for in favour of the lessee when the Taxation Department for t,he of taxation decided upon improved and the unimproved value of' t:Q.e leased land.

·Your Commissioners were convince4 that there is force in · this contention, and, provided that proper safeguards are adopted, they recommend the allowance only for the purpose mentioned. They suggest that it be laid down as a preoede:q.t condition that, in order to obtain the benefit of this special allowance, the lessee must first inform the Department in writing of his intention to

bore or sink wells, &c., and of the nature and contr;:tct price or estimated cost per foot, &c., of his · sinkings or other works of this kind, and, unless he obtain departmental approval to

h1s proposed undertaking before the commencement of his operations, no allowance should necessarily be made. 4. ALLOWANCES FOR DISASTERS.- As already stated, the "carrying capacity" is a basic element in estimating the value of land for pastoral purposes. In determining the- carrying

capacity of land, however, on which valuations have been based, various allowances have been by the Cqmmissioner- of Taxation, one of which, for relates to the spread of the

pnckly pear; a serious evil at the present time. Your Commissioners are of opinion that, on ,application to the Commissioner, it is des.irable that this allowance should be made on the basis · of the area infesteq, and that this should no.t be excised frDm the total area of the holding in deter­ value or carrying eapacity. At present the_r.e is no satisfact.ory way· of getting rid

36

of this pest, but in times of drought it may not be an unmixed evil. The st.atements ·made to Commission show that from 1,000,000 to 2,000,000 acres annually are gmng put of occupatwn from this development of the prickly pear, and this rate· will probably increase. present the cost of clearing is greater than the value of land when cleared, and until some economic method · is discovered for dealing with it the pest is· one which in increasing measure will have to be taken into. account in future valuations of land. . '

All impairments in the carrying capacity resulting ·from prolonged droughts, from diminution in the flow from artesian wells, or from injury frmn deposits of salts on any areas, or from any similar causes, will also involve allowances to be applied to normal · values before the true value is obtained. .

Your Commissioners are of opinion that the Valuation Appeal Board hereinafter referred to, the Valuer-General, and principal valuers could by collaboration lay down principles- much on the lines of those to which present practice conforms-by means ·of which the estima.tion of the modifying effects of all physical and other known could be In wa:y the

values on which taxation must be based would be more equitablY. ascertained, and It Is believed that the extraordinary discrepancies between any really impartial valuations will disappear. 5. the sittings of the Commission suggestions were made by a

pastoralist in Melbourne, and by another in South Australia, that areas should be marked OJl map within which should be no taxation of leaseholds in any form whether In

aggregation with other leasehold or freehold properties or not. The Deputy Commissioner of Taxation, Queensland, suggested an area in which discrimination · should be used as regards taxation. These included areas absolutely unfit for any class of settlement except that for pastoralist purposes, such settlement being of a . spasmodic or irregular character owing to remoteness, sparse rainfall, and consequent poverty of country. · It was suggested that under conditions such as are -implied it could be only men of a spirit of adventure and with sufficient 'Capital who could by any inducement whatever be enticed to embark on enterprises so precarious, and that it was in the interest both of the State and the Commonwealth to have such areas

occupied and applied to purposesofproduction. It was urged that everyfacility should be offered, and that rental should be and taxation non-existent. Your Commissioners were impressed with value of this suggestion o£ certain areas borderlands, but when it came to

consider the details it was apprehended that serious difficulties as regards the practical application of the suggestion may occur. The first was the impossibility in a country of great and irregular vicissitudes of drawing an arbitrary line that would separate the two classes of country that might be left taxable and which should be ·made non-taxable. Mr. Jowett, in Melbourne (Qs. 523 .and 524), favoured the idea of borderlands, and stated that the Lands Department, Queensland, should have the necessary knowledge to enable them to draw the necessary lines of demarcation. Mr. Hawkes, a South Australian pastoralist (see Q. 1444), suggesteq that Oodnadatta be taken as a centre, and the area included should extend 600 miles west into Western Australia; 600 miles east to the Darling, some hundreds of miles to the north, and 200 to 300 miles to the south. It would be found, he said, that this country in this region is valueless for stocking, unless a very great amount of money is spent. · And he pointed out that " millions of acres are unoccupied. . . . . The area is the driest in Australia."

Deputy Commissioner of Taxation, said, at Brisbane, that a line of demarcation

differentiating taxation in the way indicated might be d:cawn roughly along the 17th parallel of latitude, and should then follow · southward the proposed Camooweal-Eromanga transcontinental railway. .

It also suggested that any areas capable of feeding only one sheep to 25 Dr 30 acres should be Included in non-taxable areas. Apart from variations in estimations of carrying there is, of course, a difficulty in attempting to draw any permanent)ine. This is apparent

when Is the provision of railway facilities, the discovery of artesian supplies,

rrught at any time g1ve a value to country where value was previously non-existent ; or,

vice versa, failure .in artesian flow might reduce the value to zero. Again, wherever the line may be drawn there will be land of similar quality on either side of the border line. There will also be of poorer land closer to settled areas. Further, any attempt to make the

hne elastic would Introduce great difficulties in administration. To include land growing only one to 25 or acres would raise questions of capability, proper working, and developing of holdings,. &c.,. and It was stated in evidence. that some of the best . sheep ,were grown on .hind whiCh did not more than one sheep to twenty acres (Q. 3819). It was

suggested that the of. State land officials shou)d be sought. to map out such

areas, but the Commission, whilst recording the suggestion for consideration, . do not recommend it, of in working. Your Commissioners believe, however.,

that, on whole, It Is desirable to define areas which shall be exempt, wholly or ·partly, from land .taxatiOn, and that could be defined on a common principle by remitting the duty of defimng to the Valuation App.eal Board, at w.hose. disposal should be placed the advice ap.d twns the valuers acting under the on. of the Valuer-General.

i

37

It may be pointed out as railways, lines. of communication, &c.; are established, and as discoveries of satisfactory artesian water are made, the, boundaries of borderlands will continue to be pushed farther back, and must be as subject to periodical revision. 6. CAUSES OF UNCERTAINTY IN V ALUATIONS.-The extraordinary differences which have occurred between valuations made by the Commissioner of Taxation and the leaseholder call for some comment. Apart fr om the confusion which clearly existed in the minds of some witnesses as to the difference between the freehold value of a piece of land and the value of a leasehold interest in the same land, there were real differences in determining the value of the leasehold interest, and in the mode of capitalization by means of which its value is ascertained.·

In this connexion it may be pointed out that one cause of the between the

valuation by some leaseholders and the valuation by the Taxation Department is that the former valuation assumes- your Commissioners believe unwarrantably-that, in all cases, it should be estimated at only about, say, seven years instead of the total number of unexpired years in the lease. In the opinion of your Commissioners this is unquestionably wrong: and it may be added. if the Crown leaseholders estim:;tted the value as for the full unexpired term the two results would

usually be in markedly greater accord. · · ·

Other lessess have estimated the freehold unimproved value of their lands as a capitaliza­ tion, say, about 5 per cent. of the Crown rent, while some have consistently declared that their lands have no freehold :value whateyer notwithstanding the fact that they are prepared to pay rent for them.

Material relief will be given, to the .deduced value of the leasehold interest if the capitalization be made on the basis of 8 per cent., as elsewhere recommended,.instead of 4!-per cent. as at the present time, a recommendation which has the approval of the Cornmissioner of Taxation. 7; RACK (OR E CONOMIC) RENT AND THE QUESTION OF CAPITALIZING IN ORDER TO . ASCERTAIN LEASEHOLD INTEREST.- The present method of capitalizing in order to ascertain

the leasehold interest has already been outlined in Example 1, given i:r;t Section I., § 8. The rate ·of capitalizing . at the present time is 4! per cent., viz., the same as for

determining the full eeonomic rent from the unimproved value of the leasehold. Representations have been made:-in the evidence given-that this rate is not high enough, because in any industry whatever more than this is necessary when personal attention is and when the industry is hazardous - the interest must cover a reasonable insurance on -the Example 3· in the section mentioned above illustrates the effect of adopting a higher rate than 4! per c-ent. · One of the results is that the value of the estate is reduced, since the factor to be used as a multiplier to get the value is_:_ neglecting compound interest effects-of the . order 100 -:-- R, where R is the rate of the interest, and this factor obviously diminishes when R increases.

It is desirable, in the opinion of your Commissioners, to retain 4! per cent., or some such rate approximately to the rate for first-class securities, in order to ascertain the full economic rent, and it is also necessary to take some higher rate of interest._than 4! per cent. in order to ascertain the value of the estate. The trend of the evidence indicates that it is reasonable to expect an average return of, say, 10 per cent.

Attention is called to the following question, and afterwards to the following answer in the evidence (see Q. 3818) :-'- · . . ·

When a "corrected ".freehold value is found, it would appear to be desirable to regard the rack rental as the usual rate of interest for first class security (say, 4! per cent. at _the time of the passing of the Act), and after making all necessaryallowances, to capitalize the difference between rent reserved to the Crown and the rack rent on a higher basis, say (for example), " between 7! per cent. and 12! per cent. according to the jeopardy of the venture. "

To the question the Commissioner of Taxation replied that he agreed with this view, the details of his reply being as follow :- ·

The elimination of error in this respect would place an investment in a pastoral property on the same basis as any otherinvestment. . . . . The rate of capitalizatiort cannot vary, except as between class and class, through­ out the Commonwealth. . . . . . I think a higher rate of capitalization than 4! per eent. would be justified.

The following comments in continuation of the above made by the Commissioner · are very and touch the kernel of the whole matter. They are as follow:- . ·

In my it shouid not exceed 8 per cent., because I . think the whole of the annual profit of a pastoral

proposition is not re-invest ed in t'he business . From an examination of facts it is possible for me to say that very many pastoralists do not re-invest the whole of their annual profits in their businesses. There · is evidence that part of the profits is used to maintain the pastoralist and his family, and part of it is expended for other private purposes. In my opinion, if it be correct that most pastoralists re-invest surplus profits in their businesses, not more

than 80 per cent. to 90 per cent . of the profits would, as a rule, bf' so re-invested. The average annual profit which pastoralists assert they expect to r ealize is 10 per cent., and any profits re-in:vested in the business will be accumulated at that rate. If the whole profit were re-invest ed _in the business, and were capitalized at 10 per cent., an approximately similar result wo uld be obtained by capitalizing actual re-investment at 8 per cent. .. There is no reason to think that

an average profit of 10 per ·cent. is higher than the actual average profit realized: ;

. With the view indicated, and indorsed by the Commissioner of Taxation, your . are in agreement, and recommend that the percentage governing the capitalizing in order to obtain the leasyhold interest should be_ raised to, say, 8 per for the present.

t!: - -

i .l!i

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,· 38

· 8. THE QuESTION OF AGGREGATION.-' Forthg purpose of the present law for the aggregation of freeholds and leaseholds, the ihcidenGe of the 'tax by grad?-atwn as the combined value mounts up. ln one specific case of a large com£any It

shown ·the average income d_ erived by was £98. .It IS, however, obvious that In

the of net profits of such a con1party the bulk o.f the of a company may be

recmved by large shareholders. It was urged as exceedingly unfair that for each this to pay an annual sum greatly exceeding· which be .:raid

by any holder of a single lease. For instance, were a lease submitted to pubhc competitiOn, the company on account of its present holdings would; if successful, have to pay a much annual suin (in rent and taxation) than another competitor having no land or holding only a quantity of land. . This, it is alleged, really constitutes a handicap oii full and free competitiOn for land and oil normal and productive . . . .

The _ of cqurse to the acquisitiOn of freehold land In great

areas, in view of the fa ct that the est.ablished principle of the land tax on freehold lands 1s to eo!llbine . all lands held by any ort_ e person_ , or partnership, or company, &c., for the purpose of making the tax progressive acco:r;ding to the ascending value of all such holdings by means of a system of graduated taxation. . .

if it coul<;l b_ e that the of aggregation should not be extended to

the scheme of aggregating leaseholds separately from freeholds for purposes

of assessment would, if adbpted, be productive of anomalies discount the value of the scheme. For example, if we the position of two men. one of whom (A) owns freehold land of an unimproved value of £10,000, while the other· (B) has freehold of an unimproved value of £5 ,000 and interest valued at £5,000, the unimproved value of his interests being

also £10,000, their comparative assessments would be as follows :-

Unimproved value Statutory deduction

Tax

(A)

£10,000 5,000

£5,000

£31 13 3

(B)

Statutory deduction

Tax

(B)

Freehold. Leasehold. £5,000 £5,000

5,000 5,000

Ni1 Nil

Nil Nil

The difficulty might be overcome to a certain extent by apportioning, in (B)'s case, the statutory deduction in the foJlowing manner :-Freehold. Leasehold.

£5,000 £5,000

Half deduction 2,500 Half deduction 2,500

£2,500 Tax, £14 3s. 3d. £2,500 Tax, £14 3s. 3d. Total Tax, £28 6s. 6d. but even in this case the tax paid by (B) is less-than that paid by (A), although the value of their interests is identical; as a matter (B) would use land of much greater aggregate value than · since a leasehold interest of £5,000 represents a much larger yalue than a freehold of

value. This could be justified only by the argument that it is a State's policy to have

Its leases taken up, and therefore the tax on the lessees should be less. In so far however as it is a State's policy to have its lands taken up, it no doubt will express that in the shape o£ a rental. ·

. . IJ?- such a a lessee .receives a benefit r((ptesehting an interest in land on which it is right, If other In land are taxed, that he shou}d pay tax.

. Conformably to the principle of aggrggatiGn in the case of freeholds, your Commissioners, regard to the foregoing after caref_ u1 delib_ eratioh, have arrived at the conclusion that

taxatwn on of freeholds and leaseholds should continue, except in cases

there is suffiCient reason to believe that, the State has difficulties in bringing about occu­

patiOn of poor or reJ?ote Lands. The of the exceptions could remitted

to the Board to consider remissions of tax ; this Board, with the Valuation Branch and the Valua­ tion Board, _ could_ no doubt deal the settlement of cases on principles, and

could in. connexwn the " borderlands," referred to in § 5 of this section; the limits of the applicatiOn of the prinCiple of aggregation. 9. QF APPEAL- Opinions were freely expressed by witnesses as to the desirability of the estabhshm_ ent of a B_oard of Appeal t o which dissatisfied Crown leaseholders might make theu against thus have their objections expeditiously and economically

w1th Instead of having to _ brnig them before the High Court, as is usually now the case.

· \VIthout doubt, appeals to a H1gh ot Supreme necessarily entail much expenditure · ancl

-1065 .1

39

cause considerable delay. The majority of thewitnesses strongly favour theappointment-of a. special body of experts to act as a Board in each State. Only one witness advocat ed the retention of the present regime ; whilst another that the appeal should be only t o the Full Court of each State. . · ·

In the opinion of your Commissioners it would be an advant age t o have such a Board, and they recommend its a_Ppointment by legislative enactment . It . should of a Chairman, one assessor representing the taxpayers, and· another representlng .t he Taxation Department, and it might be called the Valuation Appeal Board. As in the main the questions and diffi­ oulties arise in each State, ohe such Board could in the fir st instance be appointed to . act for the

whole Commonwealth. Should experience show the necessity for duplication, &c ., t he question might then be considered of appointing a second Board, or more Boards, the ambit of t he juris­ diction of any one being a particular State, or a series of States. If this recommendation be power be possible- to make the B_9ard' s decisions final, and to restrict

any reference to the High Court, or other CoUI't, to points of law solely. The Valuation Appeal Board should have power tostate cases t o the High Court for deci­ sions ·as to points of law. It is ·suggested that the Board's functions should be to recommend to the Commissioner of Taxation the adoption of valuations, when such have been definitely fixed, and the could then- as provided by the present law-make the assessment

with such valuations as In accordance with a suggestion by your Commissioners elsewhere, the taxpayers shoulq. be formally notified by the Valuation Bureau of the valuation made of their · lands for taxing purposes, and if they feel aggrieved at the amount , and no satisfactory set tlement could be arrived at with the valuing authority, it should be eligible for them to lodge their ob jec­

tion to the valuation with th:e Valuation Appeal Board and receive due hearing.

1

10. INEQUITABLENESS OF TAXING FREEHOLD AND NOT LEASEHOLD.-In considering the anomalies of the existing system of taxation as a whole it has already been shown that, if the unimproved value of an area be £100,000, the freeholder would pay about £2 ,775 by way of land tax while the leaseholder would pay nothing, provided he paid a full raqk or market rent- let us say in . the case supposed, £5,,000. If this land were held under a 50 years' tenure at a rental of £1,000 in

one case, and £5 ,000 in another, the land tax would be about £1 ,480 in the former case and zero in the latter, instead of £2,775 in the case of freehold. If it were held under a 15 years' t enure, the land tax would be about £465, and so on. These results illustrat e the fact that the t axation of leaseholders is very much more favorable to the occupant than the t axation in the case of freeholds. It is obvious that the majority of people apparently lose sight of this inequality, an inequality the financial advantage of which is greatly in favour of t he leaseholder as compared

with the freeholder. Apart from the above aspect of the matter, and those set forth in Section I.,§ 6, and in Sectiori III. §§ 1, 2, 3, 4, 8, 9, 10, your Commissioners (Messrs. Knibbs and Allan) desire to refer again to the fact that leaseholds are preferred . in and that t his

indicates by unmistakable preference, that the leasehold form of · t enure has well-recognised advantages. The inference is plain, viz., that excepting fo r causes of disaster, hardship, &c. , the exemption of Crown leaseholds would not only be inequitable but it would be an inequity accentuating the disabilities-already in existence- of the fr eeholder. Your Commissioners are . satisfied that what the evidence-purporting to furnish sufficient reasons .for t he abandonment of the taxation of Crown leaseholds- really establishes is, that the t axation should be wholly or partly remitted in cases of hardship. These, in the case of . Crown leaseholds are, owing to· the seriousness of the vicissitudes of climate, . &c. , such as to warrant the concession, ot herwise the leaseholder would be unable, economically, to survive those disasters which beset t he industry in question, an industry of the first order of importance in the economic life of Australia.

The evidence showed that· some taxpayers had at least no serious objection to the t axation of leaseholds, if the leaseholds were not aggregated with freeholds (s ee Q. 267. Evidence : Mr. J. M. Niall). · It shows also that they rec'ognised that the imposition of a tax on t he lessee's interest would not involve hardship if this interest was appropriately ascertained (see also Q. 856.) Mr. L. A. Addison, a property salesman, South Australia (s ee Q. 959 ), states that he thinks

". pastoralists as a whole recognise that they should pay a t ax "; and a n1anager of a large pastoral company (Mr. Rymill-Q. 1012) " Held the opinion . t hat t here

would be no hardship" provided the values were equitably fixed. Mr. W. J. Young, the General Manager of the Australian Pastoral Company, while obj ecting t o taxation both on fr eeholds and leaseholds, states that he does not consider " that leaseholds and freeholds are in a t otally different category in respect of the principle of progressive taxation " ; and Mr. Vickery (Q. 2463A) expresses an opinion to the same effect, viz., that while " land taxation both freehold and leasehold is wrong

in if the imposition of the tax is to continue as seems inevitable the leaseholder should shoulder a fair proportion of the tax." It is worthy also of note- that Mr . G. R . Lint on· (InspeGtor of Stations for the. Scottish Australian Investment Company (Q. 3276), considers that "freeholders are treated worse than leaseholders." . · ·

40

11. oF A'nsENCE oF AGREEMENT point, and· that

a fundamental one, your Commissioners are not in agreement. One of your Commissioners (Mr. H. A. G. Curry) considers, for reasons . which he has specifically stated in § ·12 hereunder, notwithstanding the legal power of the COJ;nmon':ealth G.overnment to enforce. the it undesirable that it should be enforced in view of Its reactwn upon the State pohcy of bnnging about the satisfactory occupation of Crown lands. According to _ his therefore,. there should be no taxation whatever of Crown leaseholds. Yourother CommiSSioners (the Chairman., G. H. Knibbs, H. 0. Allan) dissent from this view, and, quite apart from the question

of the Commonwealth Government's right to impose taxation on Crown leaseholds, believe that so long as taxation upon land is enacted at all, Crown leaseholds should no more escape taxation than freehold lands-the policy of taxation should include both'--'-'-with, however, this important provision, namely, that a Board of Remission should have power to remit the tax in all _ cases of hardship and disaster, &c. They believe, mor-eover, that when the system of valuation now in force is amended as they advise, and the Valuation Appeal Board they recommend is consti­ tuted so as to insure more accurate valuation and to make over-valuation practically impossible, the basis for the claim for the abandonment of taxation for all leaseholds falls to t ile ground for want of sufficient reasonable support. They moreoyer, believe, that the admission of such a claim would lead to taxation of a very inequitable character, since comparable· lands would for identical purposes receive di:(ierent treatment. The State can, of course, reduce

the taxable interest to nil by raising the State rentals, but if they do this it will, notwithstanding the £5,000 exemption, _ be to the disadvantage of the Crown leaseholders, a fact which the latter· do not appear to fully realize. · · ·

Because of this grave difference of opinion, the two Commissi6ners in agreement (Messrs. Knibbs· and Allan), whp consider that, subject to the exceptions referred to, Crown leaseholds should be taxed, briefly reviewed the whole matter in sub-section 10. · The view of the Commissioner dissenting (Mr. H. A. G. Curry) is set forth in _the sub-section 12 following this, and it may be noted that the general conclusions are those of all three Commissioners only in so far as they presuppose agreement on the equitableness of the imposition of the tax. In regard to the dissent of your Commissioner, Mr. H. A. G. Curry, if it be overruled or disregarded, it is to be understood that while he in no way departs from the view expressed, he would then, nevertheless, consider the· proposals ·to be those of the whole Commission, and as such believes they would materially disabilities under the existing situation.

. . 12.' WHY IT IS PREFERABJ_.E NOT TO TAX CROWN LEASEHOLDERS AT ALL . (MR. H. A. G. CuRRY).-Before signing this Report your Commissioner (Mr. Curry) desires to state that, while under the decision of the High Court in Attorney-General_ for Queensland .v. Attorney-General for the Commonwealth, 20 G.L.R. 148, the question has been set at rest that the holder of a

Crown lease has an interest which, under the present is taxable by the Federal Government, he ·feels it incumi:>ent upon him to stress the question of policy involved which has already been referred to and which he considers deserves very full and delicate consideration in the proper quarter. - Taking the matter as' though it were unaffected by such a poliqy, the Report deals fully with it, and subject to this he shares in the findings and recommendations in the report. He feels, however, constrained to indicate that while -the vacant Crown lands in a State are not tax­ able, they, when leased, .become subject to a tax through the medium-of the tenant, who has been in occupation upon terms which the State Government deemed wise. Those ter!lls unques""

twnably become affected by the operation of the tax, and the State's limitations as to the amount of rent ble have to be set aside by new valuations made by different · persons and upon a different pasis. Whatever rent the State Government may have from charging becomes by the taxing authorities} and it ought to be supposed that -the State, in doing what

It . purposely refrained from seeking the highest rent in order to facilitate and increase pro­ the benefits of which would be widely diffused, not only through _ the State, but through

entire Commonwealth. Whatever the effects of a tax may be in reducing the area of estates,

It ought _to be supposed that it was not except for the purpose of revenue- the legiti­ mate obJect of !1 tax. On assumption _ an escape from any conflict with the land policy of a State would, It seems to him, be secured by a reversion to the state of before the Act of 1910 amended, in the case· of pastoralists who gamble with seasons and pests and who to_ nsk a large and b!llance heavy losses against their the income tax would,

In his vie_w, have an elasti?Ity whiCh would accommodate itself to the land occupier's prosperity or adversity, as the case might be. . _ · ,

13. DIFFICULTY. o! AssiGNING A FREEHOLD VALUE To LEASEHOLD LANDS (Mr. H. A. G. CURRY).- Your (Mr. Curry) desires also to .- say that the task of ascribing 'a freehold . value to lands If off-ered. for sale, would not find a willing. purchaser, seems tq him a very hazardous one, particularly as Improved land which is US.ed . as a basis has to .be reduced to its

unimpr,oved and same has to be gone thro-qgh in oconnexion with the improved

leaseho1d whiCh Is the silb]ect of taxatio'n. Then various allowances and deductions have' to -be

41

made in coimexion with the which is not in position or capacity to the basic

land, it not being forgotten that the purchased lands in a State are in the settled parts of it, while the pastoral leaseholds are, for the most part (though there are no doubt important exceptions) in remote and unfavoured positions. The opportunity for- error or miscalculation seems to him so great as to render it very difficult for .the most .and ex;perienced to bring out correct

results. If, however, the present basis of taxation IS continued, the adoption of the recommenda­ tion made in the Report are in his opinion well calculated to assist the taxpayer and the taxing authority to more nearly approach a satisfactory arrangement than seems in some cases to have been possible hitherto, and at the same time to afford some measure of relief to an obviously capable officer whose duties, while neecessarily unpopular, are very large and of a very exacting nature.

. .

SECTION V. __:_RECOML\IEND.ATIONS AND CONCLUSIONS. Having, as previously indicated, made exhaustive inquiry, as required by the terms of your Commission, your Commissioners find and report · as follows :-

_,. ·

1. That, owing ,to physical and climatic differences, the effect ·as between State and State of the taxation on Crown leaseholds, and the effect in the same State as between different localities, is variable; and in consequence its incidence may lead to apparently unsatisfactory results: for example, in localities where the State policy of offering th-e inducements of low rentals, in order to secure occupation, has been followed. · 2. That, although in some instances the effect the tax is consequently

and in such cases m:a y sometimes appear to be inimical · to the satisfactory occupation of the Crown lands, and- also in opposition to the State policy of settlement, yet on the whole the tax is not more-but on the whole rather less-burdensome than the taxation on freeholds. In many cases leaseholds appear even to have weighty advantages. 3. That, ih view of the fact that the policy o_ f a progressive tax . upon land has been

legislatively affirmed (possibly in order to prevent speculative holding for the purpose of securing the· benefits of "unearned increment," to compe the best practicable use of the land, . and to promote the settlement of many upon moderate areas, rather than the occupation of large areas. by a few),. the appli-cation of the·· principle of aggregation is on the whole satisfactory. · 4. That, having regard to the · desirableness . of promoting occupation, the objection

· to the aggregation of lands to form large estates. applies with less force to leaseholds than it does to freeholds. ·

· 5. That, in what may be called " outback " lands, the increase in taxation, through the application of the principle of aggregation, is deemed to be inimical to occupation; and for this reason methods are suggested by which necessary alleviation can-wherever desirable-be made by an appropriate scheme

for -the remission of taxation, either directly or by limiting the application of the principle. of aggregation. _ · ·

6. That, in. times of drought and when pests prevail, and when like conditions press severely on the occupants of Crown lands, .. partial or complete relief from. taxa­ tion should be accorded, and this should be dealt with by a Board constituted differently to the existing Board, viz., in a way referred to hereafter. 7. ·with respect to Section (b) of the terms of submissiol} to ·the Commission :-Your

Commissioners are of opinion that owing to the difficulty of correctly ascer­ taining the freehold value of leasehold lands, the incidenqe of the tax is at . present . sometimes inequitable, notwithstanding that the Commissioner of Taxation has carefully developed a system of valuation which--based upon

known freehold values.:._has attempted to deduce the value of the subject lands, by' making well-considered allowances for any disabilities and onerous conditions, &c., of the subject lands as compared with the basic lands.- · 8. That any inequitableness in the system can, however, be eliminated or greatly

alleviated by appropriately modifying the valuations in a way suggested by us; and by constituting a Valuation Appeal Board to deal with appeals against valuations, but not against assessments. -9. Your Commissioners are further of the opinion that the principles underlying this

system,' and the Taxation Commissioner's mode of taking the disabilities, . onerous conditions, &c., into account, is on the whole excellent, and merely requires relatively slight modification and a better method of reviewing the results. ·

42

10. ·That any defect from in the existing scheme ·of -tax ation lies with

the law rather than with its administration by the C9mmissioner of Taxation. '.At the same time the ele:r;nent of valuation needs some modification. 11. With respeDt to Section (c) of the terms of submission to the Com·mission, your Commissioners are of opinion that, in general, the taxation of Crown lease­

holds should be continued, but should . be modified in the following way :-(a) In general the principle of aggregation continue to be applied as at present. . .

(b) Ih certain cas.es the application Qf the principle of aggregation should be varied in a systematic manner, and by a responsible Board co:p.stituted for that and for other purposes. (c) The Commissioner of Taxation should be relieved, in the manner

hereinafter indicated, of ·an _ for the actual valuing,

and the duty of valuing should be placed in ·the hands of the V aluirtg Branch. The Valuers should be directed by a Valuer­ General for the Commonwealth, and the Valuers should decide in eonference the common principle ·which shall govern valuations

in each State. ·

(d) The Commissioner of Taxatiort should be charged, as at present, with the initial of all _which ,may be considered

to justify a remissioh of tax, and should be appointed Chairman of the Remission Board- referred to hereinafter. This . Board should take place of the existingBoard, ;which is not; in the opinion of the suitably constituted. ·

12. The . collection_ .of taxes and the valuation of are deemed by your Commis­ sioners to be incongruous as indicat.ed in (6), it is

undesirable that they· should be in the one individual. _ T_ he Commis­ sioner should, under. no _ circumstances, _ 'be entitled to vary the yaluation or the scheme of vahia tioh, . in so. far as is necessary to secure conformity with the law . . He should be charged, however, as at present, with this latter tesfponsibility;, viz. , the securing . of , conformity with la'vv.

13. In order to the work of the Commissioner of Taxation and to give finality to decisions regarding remission, .. your recommend that · the

responsibility should be mist as at upon a Remission Board. ,

14. The existing Board, appointed-by statute (vide Section 66 of. the Land Tax Assess­ ment Act 1910-1916), .consists of the Commissioner of as Chairman, the Comptroller-General of Customs,_ anq the Secretary of the Department of the Treasury. In viewofthe nature apd magnitude of the other -official duties

of Heads of _ Departments, your Commissioners are of . opinion that it is very desirable · to relieve them ·by re-constituting the Board as indicated hereinafter. · · ·

15. Your Commissioners are of opinion that the Board of Remission just referred to should consist of . three persons, .i.e., the Commissioner of Taxation (Chair­ . man); and two members of the proposed Valuation Appear Board, but should not ·include the men;_iber the ·taxpayers on that

16; Having in view the fact that the rentals may be increased-by the States Govern­ ments; and that if the rental be the full economic r:ental, the leaseholdet's interest in the lease, qutj lease, will in consequence vanish, your Commissioners · deem_that the mode of determining- the taxation, .based. (virtually) on the differ­

ence between the economic rental and that reserved to the Crown, should be continued, the full econon:iic rentai being, howev(3r; based upon what may be called the " modified " viz., that whieh allows in certain

cases for improve:rnen t (see § 19. hereinafter)._-

17. In order to :remove unnecessary delays in reaching finality in assessments, and in order' to avoid duplication of computations, as well to bring about more satis­ factory relations between taxpayers and the Commrssioner of Taxation, _it is recommended that all questions ·of valuation shbuld be definitely settled, and

taxpayer _ notified, before the assessmep.ts are made by the Commissioner.

· the _Valuing Branch is constituted as recommended and appeals can made to_ Valuation 4:ppeal Board, the at p_!'esent operating limit

the frank d1sclosure of relevant fa cts concerning valuation will in the main dis­ appear.

43

18. For determining the full ecor.omic rent the rate of 4i per cent. may still be used. It is recommended, however, that the ·value of the " interest in the leasehold" should be ascertained by capitalizing the difference between the · full economic rent and the refit reserved to the Crown on a ·basis of a bout B per cent. instead of 4t per cent. as . heretofore. The existing system is, in the · opinion of your Commissioners, inequitable. 19. In view qf all the sturounding _the occupation of new lands and in

view of the importance of facilitating in every possible ' way the occupation of the waste spaces in Australia, it is recommended that expenditure for the dis­ covery and conservation of water should . be allowed as an improvement even when are not successful, the allowance being, however, limited to the ' person making the initial expenditure and not . his successor in title, and

being moreover by requiring due notificat_ ion 'to,. and .the prior approval of, the Commissioner of Such notification, it is

recohl:rhended, should state the intention to incur the expenditure and its purpose.

20. Suggestions have been made for dealing with prickly pear lands and what may b€: called " ou.tback" or "border" lands. The former, it is recommended, should be taken account of in valuation, and the latter considered by the Board for the Remission of Tax. ·

21. It is recommended that the liability of Crown leasehold land to resumption, and the 'liability of the ·rent thereof to reappraisement; should be taken into account when fixing unimproved freehold value of the (see Section IV., § 2). This should be done by the Valuation Branch under the Valuer­

General.

22. Subject to these· changes, your Con1missioners rec-ommend . that the taxation of leaseholds should be continued,_ ap.d we are of opip.ion that- as

previously indicated-it will in general be not more intrinsically burdensome th_ an the taxation of freehold lands, and sometimes it will be m.uch less burdensome.

23. The whole of these conclusions and recommendations, read with the ·Report, will show their significance, purport, and detaileq object.

', ,

APPENDIX "A."

ROYAL COMMISSION ON TAXATION OF LEASEHOLD IN CROWN LANDS.

Question.

1. If not yourself, what firm or company do you

2. How long have you been in the stQck and . station agency business _

3. Have you had experience in the buying and selling- as going concerns-of pastoral or other industries carried on upon land leased · from the Crown 4. What, according to your expenence, IS the

· usual basis now adopted in arriving at the price to be paid or accepted in such sales 5. ·Has this basis been uniformly adopted by you throughout your experience 6. If not, what other bases have you ..

7. If there has been any change in the usual

methods adopted-(a) when did this change commence ? and (b) what was its nature 8. Is any attempt made in the State in which you reside, or in which you transact business;."

to apportion the total price paid to the

various assets purchased (viz., stock, Im­ provements, good-will, &c .) ? 9. If so, what is the basis on which this apportion­ ment is made 10. Was - a different method of apportionment

used before the passing o£ the amending Land Tax Act of 1914; if so, what was this former method ? • 11. What, in your opinion, is the reason for the

change 1 ·

12. In your opinion, is present method a correct one?-13. Give instances of any cases you may kno w of supporting any of your answers to the pre­

vious questions ? 14. Have any particular Crown leasehold properties passed through your hands more thn once ? If so, name them, .and the number of times. -15. What methods of fixing the price and appor­

tioning it to the various assets did you adopt on each occasion ? 16. If the methods were not tlie same on each occaswn, what were the reasons for the

difference ?

17. Is it your experience that a value is fixed as the good-will of leasehold properties sold as successful going concerns ? If yes, is the good-will attributed rightly estimated, and is it considerable ? 18. Il, in any cases, the good-willattributedissmall,

what do you deem to be the explanation of that fact ? 19 . Do you know of any cases where Crown lessees have been forced to abandon their lease

solely because of the magnitude of the

Federal land tax ? If so, who weJ;e the

lessees ?

20. If the abandonment of the lease was not solely due to the magnitude of the Federal land tax, what other factors may have:, been responsible for the failures ? Cite cases known to you . 21. Are you of the opinion that the payment of

land tax as at present imposed prevents, the successful carrying on of pastoral and landed industries on Crown leases generally ? 22. If cases of hardship are known to you, are they

frequent or comparatively rare ?

An1wcr. Question.

23 . Are you aware of the provisions of Section 66 of the Land Tax Assessment Act 1910-16, providing for a Board to consider cases of hardship? '

24. In your opinion, does section effectually provide for individual cases of hardship which may arise? 25. Are you aware _ what percentage of net profit,

taking into account all conditions, pastora-;. lists in your State ordinarily expect to realize from their Crown leasehold properties ? 26. Are you aware whether it is customary to base

the purchase price of a property on this per­ centage? 27. In your opinion, averaging bad years with good over a reasonable period, is that percentage

realized

28. Please indicate why, m your opinion, it is adopted as a basis ? _ 29. Do you, or does your firm, or any member of it, hold Crown leases liable to Federal land tax,

. or possess any financial intenst in any concern carrying on business on land leased from the Crown? -

30. Do you think that the value usually appor­ tioned to good-will in the sales of pastoral properties on a "walk-in-}valk-out " basis is the true value of a lease for its unexpired term? 31. Do you know of any circumstaJ;lces which cause

the amount paid for the good-will of a lease to vary from its true vlaue If so, mention them. 32. In your opinion, would the sum actually paid for the good-will of a lease be an equitable amount on which to levy land tax in all cases 33. If this bas4; were adopted, would, in your opinion, some lessees (by reason of paying ex­ cessive prices for good-will for certain reasons) be penalized, while others (who, for example, were buyers on a forced sale) might pay little or nothing for good-will, and thus escape taxation? 34. In fixing price for a leasehold, is the liability to resumption of part or the whole of the land or to re-appraisement of rent taken into account ? If so, to what extent and in what manner? 35. Do you consider the unexpired term of a· fease to be a,n_important factor in fixing its price 1 36. Would you value the good-will of a lease with an unexpired term of 20. years as :Jess than one with 30 years to run, all other things being equal ? 37. In your opinion, is good-will a matter merely to be agreed on between the buyer and seller, irrespective of other conditions ? 38. Do you think that the percentage (4!%) of the unimproved value of leased land, now adopted by the Commissioner of Taxation as the economic (or rack) rent, is too If so, what are the reasons for your opinion? 39. What percentage do you think would be fair ? 40. Have you any other comments to make or any further information which you consider may be of value to the Commissioners in their deliberations on the matters referred to ? If so, please state them.

Answer.

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APPENDIX " B ."

ATTITUDE OF WESTERN AUSTRALIAN . PASTORAL LESSEES.

w. BENJAMIN,

South Australian Hotel, Adelaide.

11/ 4/ 19.

· It being the policy of the Government to 't.ax the estate in pastoral leases we know of no method of taxation of such leaseholds in West Australia that is likely to operate more equitably than that on the unimproved freehold basis. We however deem the assessed valuations excessive. The State is now carrying out a systematic valuation of these leases for appraisement of rent and this should be helpful to the Federal authorities in correcting their values. We therefore dp not consider it necessary to move in the matter. If any formula or method other than that now operating should be introduced increasing our burden we should strongly protest against present values.

. ' ' NOBLE.

G. H. KNIBBS, Chairman Royal Commission, Commonwealth Statistician, Rialto. Taxation Owner and Leasehold Estate, Crown Lands, Melbourne. Perth. Beg to confirm my wire of eleventh instant addressed to W. Benjamin South Australia Hotel re taxation Crown leaseholds. NoBLE Sectry Pastoralists Association.

THE PAsToRALisTs' AssociATION oF WEsTERN AusTRALIA (INCORPORATED).

18 Howa:td-street, Perth, Western Australia, 14th May, 1919

G. H. KNIBBS, EsQ., Chairma,n, Royal qog1mission Taxation, Owner and Leasehold Estate Crown Lands, Melbourne. DEAR SIR,

At the request of Mr. Benjamin I have pleasure to confirm my wire to you of the 25th ult., copy of which I enclose and also copy of wire sent to Mr. Benjamin. Yours faithfully, • JNO. HY. NOBLE, Secretary.

APPENDIX "C."

A table was submitted by the Deputy Federal Commissioner of Taxation of New South Wales, showing the result of 369 obj ections lodged against. departmental valuations of land for the financial years 1910-11 and 1911-12. These have been divided into t en groups, and the totals together with the grand totals indicate that these objections were generally settled in favour of the Department's valuation.

UNIMPROVED VALUE.

·' Area In Acres. Owners. Departmental. Settled at.

£ £ £

498,125 893,570 1;320,567 1,128,374

604,951 735,954 1,068,324 1,022,665 -

,. 434,265 657,379 933,236 885,121'

712,309 962,294 . 1,369,569 1,231,013

793,300 l,084,5tl6 1,427,975 1,340,821

512,000 638,260 897,318 810,848

725,482 1,015,649 1,374,993 1,297 ,089

609,081 866,383 1, 190,206 1,132,612

803,809 1,202;653 1,538,012 1,453,1 83

- 2,043,086 2,570,467 3,455,568 3,170,864

7,736,408 10,627,115 14,575,768 13,472,590

I

46

APPENDIX

Amongst others, and in addition to the evidence, the following papers, books, documents, & c_., were taken into consideration by. the Commissioners before making their recommendations :- ,

Report of the Pastoral Lands Commission (South Australia, 1898). · .. .

Report of the Royal Co!fi.mission to inquire into the ofCrown Tenants (New South Wales, 1901). Annual Reports of Lands Depa.rtment, Queensland (1915- 1917). Annual Reports of Lands.Department, South Australia (1917-18). Annual Reports of Lands Department, New South Wales. Reports of Federal Commissioner of Taxation (1917-18).

Minutes of Evidence taken before Select Committee appointed to consider and report upon Expenditure on Industrial Enterprises. (Queensland, 1917). · Report of Select Committee appointed to consider and report on the practice of the Government, &c. (Queensland, 1917). Report of Auditor-General, Queensland, for the period ended 30th June; 1917. Parliamentary Debates (Queensland), No. 08 of 1917.

Federal Land Tax Order 816. Expenditure on destruction of Wild Dogs, Foxes, and Hawks. (Sidney Kidman). Balance-sheets, &c., of Australian Pastoral Co. Ltd. Land Acts and Land Taxation Acts of the various States. · Statement of Deputy Federal Commissioner of Taxation (Qqeensland); of Land Tax and Eent paid by

a number of Pastoralists. Details of Tenure of Curnamona Run, South Australia. Application of Public Officer, Canowie Pastoral Co. Ltd., for relief under Section 66. Evidence and Judgment in the case Canowie Pastoral Co. Ltd. v. Federal Commissioner of Taxation. Details of Capital invested in Curnamona Run. Histo'ry of Legislation relating to Pastoral Leases in South Australia. Rainfall Details. (R. W. Bennett). . /

State-ment of certain Walk-in Walk-out sales within the knowledge of the Sub-manager for Dalgety & Co . Ltd., South Australia. . - .

Expenditure on Unsuccessful Water Improvements. (W. G. Duncan). Crown Lease Forms in use in various States. Purchase money paid in several Contracts of Sale of Leasehold Properties. (R. W. Bennett). Judgments. Cubbie and Warbreccan Cases. (Queensland). Maps issued by L,ands Departmep.t, QueenslanQ.. · Specimen Taxation Valuers' Reports. (Queensland and NewSo11.th Wales). S.tatistic 3 of Queensland for 1917. Annual Reports of Commissioner of Tax:es. (Queensland).

Details of following holdings :.,Lissington, Lila Springs, Pirillie, Bierbank, Wirling, Thule, Keewong, Wongram, Coan Downs. ·.

Map of Western Division of New South Wales. (Speight). Raip.fall Map of New South Wales. R esult3 of Appeals. (New South Wales). · Under-Secretary of Perth, re Basis of fixing Crown Rentals.

Detarls of Profits· Tenure, Re-appraisement, &c., on Various Leases. (.J. M. Niall). Statutory Declaration by R. K. Wilson. (Queensland). Pastoral Disabilities due to Enactments. (Queensland) .

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