House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

Main Features

Changes to taxation concessions

Amendments are proposed to reduce the level of certain concessions available under the income tax law. The concessions to be amended are the deductions for costs of converting oil or LPG-fired plant; the 20 per cent loading on depreciation rates on certain plant; the investment allowance; the deductions for capital expenditure incurred on the development of a mine or oil field; and the rebate of tax to shareholders in respect of capital subscribed to certain petroleum exploration and mining companies.

- deductions for costs of converting oil or LPG-fired plant (Clause 7)

It is proposed that the deduction allowable for capital costs incurred by a taxpayer in converting oil or LPG fired plant to use alternative energy sources be allowable in equal instalments over 2 income years instead of in one year as at present.

The amendment will apply to conversion costs incurred after 30 April 1981, except those incurred under a contract entered into on or before 30 April 1981 or incurred in connection with a conversion that the taxpayer commenced to carry out on or before 30 April 1981.

- special depreciation loading on plant (Clause 8)

Under the depreciation provisions the annual deductions that are allowable are ordinarily based on rates of depreciation that are fixed on the basis of the estimated effective life of the plant concerned. These rates are generally increased by a loading of 20 per cent.

This clause will reduce the special loading to 18 per cent and will apply to plant acquired under a contract entered into after 30 April 1981 and to plant constructed by a taxpayer where construction commenced after 30 April 1981.

- investment allowance (Clause 9)

The investment allowance deduction of 20 per cent of the cost of new plant is to be reduced to 18 per cent. This reduction is to be made by specifying in the law that the deduction is to be 90 per cent of the deduction that would otherwise be allowable.

The reduced deduction will apply to plant acquired under a contract entered into after 30 April 1981, and to plant constructed by the taxpayer and commenced after 30 April 1981.

- deductions for capital expenditure incurred on the development of a mine or oil field (Clauses 4 to 6 and 10 to 23)

Deductions in respect of specified capital expenditures incurred in developing a mining property or oil field are calculated by reference to the lesser of the estimated life of the mine or field, or 5 years.

In respect of allowable capital expenditures incurred after 30 April 1981 (unless contracted on or before that date or, in respect of property constructed by the taxpayer, where construction commenced on or before that date) the deductions allowable on a life-of-mine or life-of-field basis will be calculated by reference to a maximum statutory life of 6 years instead of 5.

- petroleum shareholder rebate (Clause 30)

The rebate of tax available in respect of moneys paid on shares in petroleum exploration and mining companies, or to certain interposed investment companies, will be reduced from 30 per cent to 27 per cent.

The reduced rebate will apply to moneys paid by a taxpayer after 30 April 1981 except that moneys in respect of calls made on or before 30 April 1981 in respect of shares owned by the taxpayer at that date will retain eligibility for the 30 per cent rebate even if paid after that date.

Rebates for dependants, sole parent, and housekeeper (Clauses 24 to 26)

The maximum amounts allowable for specified concessional rebates will be increased as from the beginning of the 1981-82 income year by raising the existing amounts by the half-indexation factor of 1.038 as follows:

The level of separate net income that a dependant may earn before the relevant maximum rebate begins to "shadeout", is also to be increased by the 1.038 factor from $272 to $282.

Indexation (Clauses 28, 29 and 35)

1981-82 will be the last year to which the present system of indexation adjustments of rebates and the personal tax rates scale will apply.

Income tax rates (Clauses 31 to 48)

The income ranges of the rates scale will be adjusted as from the beginning of the 1981-82 income year by the 1.038 half-indexation factor. (Clauses 37, 39, 42, 44 and 46 are drafting measures to insert the indexed amounts that applied for 1980-81 in the 1980-81 schedules to the Rates Act. These will enable the indexed values to be ascertained directly from the schedules, avoiding the need to calculate them by application of the 1980-81 indexation factor to the amounts that applied for the preceding year.)

Income tax rebate for contributions paid for basic hospital or basic medical insurance (Clause 27)

An income tax rebate will be allowable for contributions paid by a taxpayer to a registered health insurance organisation for basic hospital insurance or basic medical insurance for the benefit of the taxpayer, the spouse of the taxpayer or any children of the taxpayer or his or her spouse.

The rebate will be available for eligible contributions paid on or after 1 July 1981 in respect of cover for basic medical or hospital benefits on or after that date.

The rebate will be at the rate of 32 cents in the dollar of eligible contributions and will be in addition to the standard concessional rebate that is allowable for classes of private expenditures, including payments for medical and hospital expenses.

Each of the clauses of the Bill is explained in more detail in the notes that follow.