Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)General outline
The Bill will give effect to three of the taxation initiatives foreshadowed in the Prime Minister's Policy Speech for the recent elections.
These are the initiatives for a special depreciation allowance for new plant used by primary producers and for new fishing vessels and fishing equipment; for immediate deductibility of capital expenditure on soil conservation on land in Australia being used for primary production; and removal of the specific exclusion from the investment allowance of amusement or recreation plant. The Bill also proposes to correct some minor drafting errors in the legislation that was enacted earlier this year to introduce the 40 per cent oil-fired conversion allowance.
Special depreciation on new property used in agricultural, pastoral, forestry and fishing operations (Clauses 3, 6 and 7)
A special depreciation provision will authorise the writing-off, in equal instalments over five years, of the cost of new items of plant and machinery that are used wholly and exclusively in agricultural or pastoral pursuits, or in forestry operations. The new allowance is also to apply to plant in the form of fishing vessels, fishing equipment and shore-based plant used wholly and exclusively in fishing operations. The accelerated write-off will be available for eligible plant and machinery acquired under a contract entered into after 30 September 1980, or which the taxpayer commenced to construct after that date.
Structural improvements, and motor vehicles designed primarily for the transport of persons, will not attract the special 20 per cent rate of depreciation; nor will plant that is purchased second-hand. Also, any property for which the law provides a statutory rate of depreciation higher than 20 per cent will not come under the new provisions.
Taxpayers will be able to elect to have normal rates of depreciation apply to individual plant items instead of the 20 per cent rate, if they so wish. Such an election ordinarily must be made at the time of lodgment of the income tax return in which depreciation is first claimed for the plant or machinery. Once made, an election will be irrevocable.
Deductions for capital expenditure by primary producers on soil conservation (Clauses 4, 8, 9, 13 and 14)
It is proposed to enact new provisions that will provide immediate deductibility for capital expenditure incurred by a primary producer on a range of soil conservation operations on land in Australia that is being used in primary production. Expenditure that qualifies for the deduction is not also to qualify for the investment allowance.
Under the present law, expenditures related to soil conservation may be deductible over a period of years. In the case of expenditure on the fencing of erosion or saline affected land, the cost of the fencing is depreciable under the general provisions of the law. In the case of other eligible conservation measures, the cost is deductible by equal instalments over ten years.
Eligible conservation measures are the eradication or extermination of animal or vegetable pests, destruction of detrimental weed or plant growth, draining of swamp or low-lying land, prevention and combating of soil erosion, erection of fences to exclude livestock or vermin from areas affected by erosion or excessive salinity and the construction of levee banks.
The proposed amendments will permit the expenditures in question to qualify for immediate deductibility if incurred after 30 September 1980 under a contract entered into after that date or, where the operation is carried out by the taxpayer, if the operation commenced after that date.
Investment allowance (Clauses 10 to 12)
It is proposed to amend the investment allowance provisions of the income tax law to remove the present exclusion of plant used for purposes of amusement or recreation. This is to be achieved by withdrawing paragraph (f) of section 82AF(2) which presently applies to exclude from the scope of the allowance plant for use in amusement or recreation, including plant for use in connection with sport, gaming or gambling and public entertainment such as circuses and theatres.
In addition, the related exclusion from the investment allowance of expenditure on plumbing fixtures and fittings associated with the provision of recreational and similar facilities for employees is to be withdrawn.
Plant thus brought within the scope of the investment allowance by the amendments will be subject to the general deductibility requirements of the allowance, for example, that the plant be used wholly and exclusively in Australia for the production of assessable income and that the plant not be let out on short-term hire.
The proposed amendments will apply to expenditure incurred on or after 1 October 1980 on property acquired under a contract entered into on or after that date. For property constructed by the taxpayer, the amendments will apply to expenditure incurred on or after 1 October 1980 in respect of construction commenced on or after that date.
Notes on individual clauses of the Bill follow.