Supplementary Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
1.1 Following the introduction of the Bill into Parliament, the Government has received representations that there may be a small number of cases where taxpayers may not be able to obtain a deduction under any provision of the law, including new Division 46 , for expenditure on software.
1.2 Generally, the Bill ensures that expenditure on software would only be covered by new Division 46 where the expenditure is principally for a taxpayer to use the software to perform the functions for which the software is acquired or developed. The Bill specifically excludes expenditure on software which is trading stock and expenditure which receives a more favourable treatment under another capital allowance provision of the law.
1.3 The amendments being moved on behalf of the Government will ensure that all expenditure on software will be deductible, either within new Division 46 or elsewhere in the tax law.
1.4 Amendment (1) introduces a guide to new Division 46 .
1.5 Amendment (2) is structural in nature and removes the current limitation that expenditure on software for new Division 46 purposes is limited to software which is principally for you to use as software.
1.6 Amendment (3) introduces new subsection 46-15(2) which provides that new Division 46 will exclude expenditure on software if:
- a deduction is available for the expenditure under another provision of the law; and
- the software is acquired or developed other than principally to use to perform the functions for which it was acquired or developed.
Taxpayers whose principal business is the acquisition or development of software for on-selling or on-licensing and who are entitled to a deduction elsewhere in the law will typically be covered by this exclusion.
1.7 This exclusion is in addition to the current exclusions in the Bill as introduced. Those exclusions, which will now be in new subsection 46-15(1) , cover expenditure on software where:
- the software is, or forms part of, trading stock; or
- the expenditure receives more favourable tax treatment under another capital allowance.
1.8 Amendment (3) also introduces new subsection 46-15(3) to clarify that expenditure on software will be excluded from new Division 46 if it is covered by either or both of new subsections 46-15(1) and 46-15(2) .
1.9 Amendment (4) clarifies the operation of proposed new section 46-20 of the Bill by ensuring that its operation takes into account the three exclusions discussed above.