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36. Reservation to Chapter 24: Estate and Gift Duty
My reservation relates to the Committee's proposals in regard to gifts of services. In paragraph 24.A57 the Committee declined to commit itself to a recommendation that the base of the gift duty should include, to the extent that they are unrewarded, the value of services given to an individual, partnership, trust or company, where the services concern business operations conducted by that individual, partnership, trust or company, and the parties are related persons. In my view the base of the gift duty should be extended in this way. If a father employed by an unrelated person wishes to make a gift to his children, he must make a gift out of the salary he has received and his gift will be subject to gift duty. A father who is a member of a family partnership, or is employed by a trust or company in which his children have interests, may make a like gift by taking as his share of partnership profits or his salary an amount less than the value of his services, but this gift will not be subject to gift duty unless the base of the duty is extended in the way proposed.
Valuation of services is already undertaken in the administration of the income tax to determine whether a reward for services paid to a relative is excessive. And in paragraph 24.A 105 the Committee proposes that an excessive reward in these circumstances will involve a gift. The valuation called for is no different when the purpose is to determine whether a reward is inadequate.
The taking of an inadequate reward for services should be treated as a gift for gift duty purposes within the limits explained in paragraphs 24.A55 and 24.A56 and subject to an allowance for income tax in accordance with paragraph 24.A105. The gifts referred to in paragraphs 24.A67 (relating to partnerships) and 24.A78 (relating to gifts to companies) should include gifts of services.
R. W. Parsons