House of Representatives

Income Tax Assessment Amendment Bill (No. 6) 1980

Income Tax Assessment Amendment Act (No. 6) 1980

Second Reading Speech

by the Treasurer, the Hon. John Howard M.P.

The Bill will give effect to three of the taxation measures announced in the Prime Minister's policy speech.

The three measures are a special 20 per cent depreciation allowance for new plant used by primary producers and for new fishing vessels and related equipment, full deductions in the year of expenditure for capital outlays on soil conservation on primary production land and the removal of a specific exclusion from the investment allowance of plant for use in amusement or recreation.

Depreciation of Primary Producers' Plant

A 20 per cent rate of depreciation, on a prime cost basis, is to be provided for new machinery and other plant used exclusively in agricultural or pastoral pursuits or forestry operations. New fishing vessels, fishing equipment and shore-based plant that is used exclusively in fishing operations are also to qualify.

The new allowance will enable the cost of eligible plant to be written off for tax purposes in equal instalments over 5 years, beginning in the year in which the plant is first used or installed ready for use.

The new measure will apply to plant that is ordered - or, if constructed by the taxpayer, construction of which is started - on or after 1 October 1980. Structural improvements and motor cars, motor cycles and other passenger motor vehicles will not be eligible. Neither will second-hand plant.

The Bill will permit taxpayers to elect for ordinary rates of depreciation to be applied to individual items of plant instead of the special 20 per cent rate.

Soil Conservation Expenditure

The second of the policy initiatives implemented by the Bill will authorise full deductions in the year of expenditure for the capital cost of a wide range of soil conservation measures on land in Australia that is used for primary production.

Capital expenditures to qualify for the new deduction include outlays on the eradication or extermination of animal or vegetable pests, on the destruction of detrimental weed or plant growth and on the draining of swamp or low-lying land. Also specified are expenditures on the prevention or combating of soil erosion, on the erection of control fences to exclude livestock or vermin from areas affected by erosion or excessive salinity and on the erection of levee banks.

At present, expenditures of these kinds are generally deductible by way of equal instalments over a period of 10 years or, in the case of fencing, are subject to depreciation allowances over a number of years.

Eligible expenditure on soil conservation measures will qualify for the full deduction if it is incurred under a contract entered into on or after 1 October 1980 or is incurred on or after that date in an operation carried out by the taxpayer.

Investment Allowance

The Bill will amend the investment allowance provisions of the income tax law so that new plant for use in connection with amusement or recreation, or in some related activities, may qualify for the allowance. The amendment will apply in respect of capital expenditure incurred after 30 September 1980 on the acquisition of such plant under a contract entered into after that date or, if the plant is constructed by the taxpayer, construction of which began after that date.

Mr Speaker, I would like to take this opportunity to foreshadow a further amendment to the Investment Allowance Provisions that I propose to introduce at a later date.

The Government has received strong representations concerning the ineligibility for the allowance of expenditure incurred on the acquisition of new tourist buses. Buses that operate solely in carrying passengers from one place to another as part of a regular bus service currently qualify for the allowance. However, the exclusion of plant for use in connection with amusement or recreation has hitherto meant that buses used to a significant extent for sightseeing tours have failed to qualify.

The amendment proposed in this Bill will, of course, change this situation as regards buses used in this way so that such buses that are acquired under contracts entered into on or after 1 October 1980 will qualify for the allowance.

However, industry representatives have pointed to unqualified advice given to them by the office of the then Treasurer in December 1975 to the effect that tourist buses would be eligible for the allowance. This advice followed the announcement in the 1975 Policy Speech that an investment allowance would be introduced. Although subsequent press statements made by the then Treasurer indicated that - along with certain other categories of plant - plant for use in connection with amusement or recreation would be outside the scope of the scheme, the Government recognises that large amounts of expenditure may have been committed in the belief that all tourist buses would be eligible for the investment allowance. The Government has decided, therefore, that the law should be further amended to allow the buses to qualify for the investment allowance as from 1 January 1976- the date of commencement of the allowance.

A Bill to give effect to this further decision will be introduced as soon as practicable and will ensure that, for the period from 1 January 1976 to 30 September 1980, the exclusion for plant for use in amusement or recreation will be treated as not having operated in relation to tourist buses. Bus owners who have been unable to obtain deductions on the basis of the present law will be entitled to have their assessments amended to accord with this decision.

Classes of plant brought within the scope of the investment allowance by this Bill and by the further amendments I have foreshadowed will, of course, remain subject to the general requirements of the Investment Allowance Provisions. For example, the general exclusion from the allowance of cars and other light vehicles will mean that buses designed to carry less than 9 passengers will continue to be excluded from the allowance, as will buses of any size that are hired out on a "Drive-Yourself" basis.

Details of the Bill are contained in an explanatory memorandum that is being circulated to Honourable members.

I commend the Bill to the House.