ATO Interpretative Decision
ATO ID 2008/71 (Withdrawn)
Income TaxCapital allowances: environmental protection activities - payment to purchaser of mining tenement to assume liability and indemnify taxpayer
FOI status: may be released
This ATO ID is withdrawn and has been replaced by TR 2020/2 Income tax: deductions for expenditure on environmental protection activities.This document has changed over time. View its history.
Status of this decision: Decision withdrawn 17 April 2019.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Where the taxpayer makes a payment to the purchaser as part of the sale of mining tenements to assume liabilities arising in respect of the tenements under mining, land and environment laws, are environmental protection activities carried on by the purchaser subsequent to the sale carried on 'by or for' the taxpayer as required by subsection 40-755(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
No, the environmental protection activities are not carried on 'by or for' the taxpayer following the sale of the tenements as required by subsection 40-755(1) of the ITAA 1997 because the taxpayer has no part in any such activity, no interest in the land or mining tenements, and is indemnified in respect of liability to pay for or perform such activity.
The taxpayer operates a mine for a number of years.
The taxpayer enters an agreement to sell the mining tenements and assets to another entity (the purchaser).
The agreement contains the condition that the purchaser assumes all current and future liabilities in respect of the mining tenements and land under mining, land and environmental laws and indemnifies the taxpayer against same.
The agreement requires that the taxpayer pay the purchaser an amount to remediate and rehabilitate the tenements and manage the same.
All activities matching the descriptions of 'environmental protection activities' in paragraphs 40-755(2)(a) and 40-755(2)(b) of the ITAA 1997 that are undertaken upon the tenements after the sale are undertaken by the purchaser or the purchaser's agents.
Reasons for Decision
Subsection 40-755(1) of the ITAA 1997 provides an immediate deduction for expenditure, whether capital or not, incurred for the sole or dominant purpose of carrying on environmental protection activities.
Environmental protection activities are defined in subsection 40-755(2) of the ITAA 1997, which states:
Environmental protection activities are any of the following activities that are carried on by or for you:
- waste resulting, or likely to result from your earning activity; or
- waste that is on or from the site of your earning activity; or
- waste that is on or from a site where an entity was carrying on any business that you have acquired and carry in substantially unchanged as your earning activity.
No other activities are environmental protection activities.
The environmental protection activities must be carried out 'by or for' a taxpayer before the expenditure on them qualifies for deduction by that taxpayer.
The term 'by or for' in subsection 40-755(2) of the ITAA 1997 is not defined in the legislation and therefore the words have their ordinary meaning.
The Macquarie Dictionary definition of 'by' in this context is: '12. through the agency or efficacy of: founded by Napoleon; done by force' (The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW). Therefore, an activity is carried out 'by' a person if it occurs directly through their agency.
The taxpayer has no involvement in environmental protection activities on the tenements following the sale and thus the activities cannot be said to be carried on 'by' the taxpayer.
The Macquarie Dictionary definition of 'for' in this context is: '12. in the interest of: to act for a client'. Therefore, an activity is carried on 'for' a person, if it is performed by another to the benefit of or in place of the person.
The taxpayer has no interest in the land or mining tenements and is indemnified against liabilities in respect of same after the sale. It follows then that environmental activities carried on upon the tenements by the purchaser or their agents are not carried on for the benefit of, or in the place of the taxpayer. Accordingly, environmental protection activities carried on upon the tenements following the sale are not carried on 'for' the taxpayer.
Environmental protection activities are not carried on 'by or for' the taxpayer following the sale of the tenements, as required by subsection 40-755(1) of the ITAA 1997, because the taxpayer has no part in any such activity, no interest in the land or mining tenements, and is indemnified in respect of liability to pay for or perform such activity.
Year of income: Year ended 30 June 2005
ATO ID 2008/72
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW
Deductions & expenses
Disposal of mining & exploration rights
Environmental protection activities
Environmental protection expenses
Mine rehabilitation expenses
Mining & exploration rights
Mining & petroleum
Mining leases & tenements
Mining site rehabilitation