Explanatory Memorandum(Circulated by the authority of the Treasurer,the Hon Ralph Willis, M.P.)
Chapter 11 Rehabilitation of Mining, Quarrying and Petroleum Sites
Clauses: 42,43,44 and 63
Clarifies the operation of the rehabilitation provisions in respect of partial restoration and expenditure on plant or articles. The amendments make it clear that the rehabilitation provisions apply to partial restoration, including restoration of part only of a site, and apply to revenue expenditures on plant or articles such as repairs.
11.1 Two minor amendments will be made to the rehabilitation provisions to clarify their operation in respect of partial restoration and in respect of revenue expenditure on plant or articles.
11.2 Division 10AB, which allows a deduction for costs incurred on or after 1 July 1991 in rehabilitating mining, quarrying and petroleum sites, was introduced by Taxation Laws Amendment Act (No. 2) 1991 with effect from 27 June 1991. Two aspects of the operation of that Division are to be addressed by this Bill.
11.3 Firstly, the Division allows a deduction for costs incurred in restoring a mine, quarry or petroleum site to either its pre-mining condition or to a reasonable approximation of its pre-mining condition. This includes work going only part way to full restoration of the site, and work that restores (or partly restores) only part of a site.
11.4 Concerns have been raised that the Division may be misinterpreted. Industry representatives fear that the provision could be read so as not to allow a deduction if restoration only goes part way to a full restoration of the site or if only part of the site is restored. They also fear that the Division could be read as requiring all mining work to have ended before any deduction for rehabilitation work will be allowed.
11.5 The Division will be amended to put beyond doubt that deductions are available for partial restoration and for restoration of part of the site. No specific amendment need specify that the deductions are available even if mining work continues on some part of the site; once it is clear that restoration of part of the site is deductible, the Division will clearly apply even if mining work is not over.
11.6 Secondly, the cost of plant or articles used in restoring a site is depreciable, rather than immediately deductible, under the Division. A specific provision excludes those depreciable costs from the deduction. However, a technical concern was raised that the exclusion provision, which is expressed in fairly broad terms, might also exclude other costs, including revenue costs such as repairs, relating to plant or articles used in the rehabilitation of a site.
11.7 An amendment will also be made to make it clear that it is the depreciable costs of plant or articles that are excluded from immediate deduction under the Division.
11.8 Subsection 124BA(1) allows a deduction to the extent to which any expenditure is in respect of rehabilitation related activities.
11.9 The definition of rehabilitation related activity was always intended to apply to both restoration of a part of a site and any act of rehabilitation on the site even though it would not necessarily completely restore the site to its pre-mining condition.
11.10 The fear that deductions might be denied where some mining work on a site continues depended on the mistaken view that the Division relates only to the restoration of the whole site. Of course, restoration of the whole site cannot be completed until mining work ends.
11.11 The use of the word "site" was not to be read as limiting the rehabilitation deduction only to a restoration of the entire site. To make this clear, section 124B will be amended to define site to include a part of a site. This also makes it clear that the Division applies to rehabilitation work even before mining work ends. [Clause 42]
11.12 The use of the words to, or to a reasonable approximation of, the pre-mining condition of the site was intended to have a threefold effect:
- the words "pre-mining condition of the site" ensure that expenses incurred in improving the site beyond its pre-mining condition are not deductible;
- the expression "reasonable approximation" of the pre-mining condition is intended to acknowledge that rehabilitation is not expected to replicate exactly the pre-mining condition of the site; and
- the expression "reasonable approximation" of the pre-mining condition is also used to ensure that a deduction is allowable for expenses incurred in restoring the site only partly towards its pre-mining condition.
11.13 The third of these effects has been doubted. A new subsection will be inserted in section 124BB to ensure that it applies. The subsection expressly states that a partial restoration of a site will amount to the restoration of the site as that expression is used in subsection 124BB(1). And the new subsection makes it clear that such a partial restoration will qualify for the deduction even though the taxpayer may have no intention of rehabilitating a site completely to its pre-mining condition. [Clause 43]
11.14 For example, it is widely accepted that the partial removal of offshore oil rig structures by the petroleum mining industry is a sound environmental practice. Therefore, if a company removes only part of its platform structures to a depth of, say, 70 metres below sea level, rather than remove the structure entirely, the cost of that partial removal will still qualify for the deduction. The result would also be the same if, say, the company simply collapsed the platform on site without removing the debris from the sea bed.
11.15 The cost of plant or articles used in the rehabilitation of a mine, quarry or petroleum site qualifies for deduction under the depreciation provisions rather than for the outright deduction available under Division 10AB.
11.16 As presently worded, paragraph 124BC(1)(a) excludes from the deduction any expenditure "in respect of property, being plant or articles for the purposes of section 54". It has been suggested that the effect of this expression is to exclude not only the actual cost of acquiring the plant or articles themselves but perhaps also any revenue costs, such as money expended on repairs to them. This argument is based on the very broad meaning generally given to the phrase "in respect of".
11.17 Paragraph 124BC(1)(a) will be deleted and a new subsection will be inserted to ensure that this unintended result does not arise. This new subsection will ensure that only those expenses which are eligible for a depreciation deduction will be excluded from the Division. [Clause 44]
11.18 The amendments made by this Bill will apply to expenditure on rehabilitation related activities on or after 1 July 1991.
Clause 42: Amends section 124B to provide a definition of site.
Clause 43: Amends section 124BB to allow a deduction for partial restoration of a site.
Clause 44: Amends section 124BC to clarify its operation in respect of expenditure on plant or articles.
Subclause 63(12): Commencement date.