Supplementary Explanatory Memorandum and correction
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Submarine cables and indefeasible rights to use them
Overview
2.1 These amendments will ensure that expenditure on IRUs after 11.45 am AEST on 21 September 1999 will be able to be written off over the life of the cable, regardless of when the contract to purchase the IRU was entered into, but provided the cable has not previously been used for communication purposes.
2.2 The provisions implementing the new depreciation arrangements were not intended to exclude IRUs from the general plant exemption from capital gains tax. Consistent with other plant, disposals and partial disposals of IRUs were intended to be dealt with under the full balancing adjustment provisions inserted by Schedule 1 to this Bill. This amendment will clarify that capital gains tax does not apply to disposals and part disposals of IRUs but rather that such disposals are dealt with solely under the depreciation balancing adjustment provisions.
2.3 An IRU is not eligible for depreciation until it is used for the purpose of producing assessable income. This will not occur until the relevant cable is completed and capable of being used for telecommunications purposes. The rules for partial disposal of IRUs, like balancing adjustment rules for depreciation generally, do not operate until depreciation has commenced. Where the holder of an IRU partially disposes of its IRU before the cable has been completed, the partial disposal rules cannot apply. This amendment will ensure that those partial disposal rules apply before the relevant cable begins to be used for telecommunications purposes.
Explanation of amendments
2.4 Amendments 8 and 9 ensure that the capital gains tax provisions apply to IRUs as if they were units of plant. This does not mean that a disposal or partial disposal of an IRU will be subject to CGT. On the contrary, because of the operation of new section 118-24 (contained in Schedule 1 to this Bill) a capital gain or capital loss is disregarded if the asset disposed of is plant. This amendment ensures that disposals and part disposals of IRUs are dealt with exclusively under the balancing adjustment provisions.
2.5 Amendment 10 ensures that partial disposals of IRUs are dealt with under new sections 44-20 and 44-25 where the disposal occurs before the IRU begins to be depreciated as well as after that time. It does this by removing the requirement that the section have effect only when the taxpayer has deducted or can deduct an amount for depreciation.
2.6 Amendment 11 ensures that the part of the IRU that is disposed of will have both a cost for depreciation purposes and a cost base for CGT purposes. Both of these amounts will be that part of the cost and cost base of the original plant just before the split into 2 assets, as is reasonably attributable to the part the taxpayer disposed of.
2.7 Amendment 12 ensures that depreciation deductions can be taken by taxpayers that have incurred expenditure on IRUs over new cables after the time of the Government's announcement (i.e. 11.45 am AEST on 21 September 1999).