Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 1 - Rebates (tax offsets) for expenditures on landcare and on water facilities
Overview
1.1 Part 1 of Schedule 1 of the Bill will insert new Division 388 into the Income Tax Assessment Act 1997 (the 1997 Act). Division 388 will allow you in certain circumstances to claim a rebate (tax offset) for up to $5,000 of the expenditure that you incur on each of landcare operations and on facilities to conserve or convey water. The rebate (tax offset) is available as an alternative to claiming the income tax deductions for expenditure of this kind available under subdivisions 387-A and 387-B. The Part also contains technical amendments to the 1997 Act that are consequential upon the enactment of Division 388 .
1.2 Part 2 of Schedule 1 contains technical amendments to the Income Tax Assessment Act 1936 (the 1936 Act) that are consequential upon the enactment of Division 388 . Part 3 of Schedule 1 contains the application provision for the Schedule.
Summary of the amendments
1.3 The amendments have the following broad features:
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- they permit certain taxpayers who can claim an income tax deduction for capital expenditure in a particular year under subdivision 387-A or 387-B to claim instead a rebate (tax offset) for up to $5,000 for the expenditure under each subdivision
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- those taxpayers who are eligible to claim the rebate must have a taxable income $20,700 or below
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- if you do not have sufficient tax liability to absorb the offset, you may carry forward the excess
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- the relevant expenditure must be incurred after the start of the 1997-98 income year and before the end of the 2000-01 income year
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- if you choose the rebate for your expenditure you cannot also deduct that expenditure under subdivision 387-A or 387-B of the 1997 Act.
Background to the legislation
1.4 The Bill implements the Government's election commitment, outlined in the document, Reviving the Heartland , to give farmers a choice between accelerated deductions for Landcare works under subdivisions 387-A and 387-B of the Act or a tax rebate/credit set at the marginal tax rate of 34 cents in the dollar for qualifying expenditure.
1.5 On 1 July 1997, the Minister for Primary Industries and Energy announced that there would be a tax incentive for landcare in the form of a tax rebate (tax offset) for capital expenditure incurred under subdivisions 387-A and 387-B of the Act. The rebate (tax offset) would be calculated at 34 cents in the dollar and would be able to be carried forward into subsequent income years. The Treasurer and the Minister for Primary Industries and Energy provided further details in their 12 May 1998 announcement.
1.6 These measures are designed to encourage low income farmers and rural land-holders to incur expenditure on landcare operations and on facilities for the conserving or conveying of water.
1.7 Under subdivision 387-A, eligible capital expenditure on landcare operations for your primary production land or for rural land used for your income production from business is tax deductible in the year in which the expenditure is incurred. Under subdivision 387-B, eligible capital expenditure on the conveying or conserving of water for your Australian primary production land is tax deductible over a three year period. The tax deductions produce only a small tax benefit to taxpayers whose low income produces a low effective tax rate; so those taxpayers have relatively little incentive to incur such expenditure.