House of Representatives

New Business Tax System (Capital Allowances) Bill 2001

Second Reading Speech

Mr Slipper (Parliamentary Secretary to the Minister for Finance and Administration)

I move:

That the bill be now read a second time.

The New Business Tax System (Capital Allowances) Bill 2001, to take effect from 1 July 2001, further implements the government's reforms to give Australia a new business tax system by providing a uniform capital allowance (UCA) system.

The bill reflects the government's commitment to simplifying the tax law by streamlining the tax treatment of depreciating assets.

The UCA applies to all taxpayers except those small businesses that participate in the simplified tax system. It is a set of common principles that consolidates and replaces more than 27 separate capital allowance regimes in the existing tax law. These principles allow taxpayers to calculate deductions for the decline in value of the depreciating assets they hold.

The common principles provide standardised rules for many disparate capital allowances. In addition, specific provisions maintain current rules for primary producers and for mining and quarrying exploration.

The UCA will continue to allow taxpayers either to use the effective life schedule of the Commissioner of Taxation or to self-assess the effective life of their assets. The legislation provides greater certainty for taxpayers relying on the effective lives of assets as determined by the Commissioner of Taxation.

From 1 July this year taxpayers can choose to allocate to a low-value pool all assets costing less than $1,000, as well as assets that have declined in value to less than $1,000 under the diminishing value method.

These rules do not apply to small business taxpayers who use the simplified tax system. Instead, they can immediately deduct any asset costing less than $1,000, other than horticultural plants and grapevines, which ordinarily form part of plantations of larger cost.

In addition to low-value pools, a special pooling arrangement is available to taxpayers who incur expenditure for software development. Software development pools may be beneficial to those taxpayers who have many software development projects in train at any one time. In such a situation, taxpayers can reduce compliance costs by pooling the expenditure on these projects.

Further, expenditure which is not part of the cost of a depreciating asset and which may not have been previously deductible may be deductible through pooling arrangements. Under this arrangement, taxpayers can deduct certain mining and transport capital expenditure by allocating that amount to the pool. Having allocated the project amount to the pool, a taxpayer can deduct an amount of the project each year.

In addition, the UCA provides an immediate write-off for depreciating assets costing no more than $300 which are used by taxpayers predominantly in deriving non-business income. This deduction will have effect from 1 July 2000. This will benefit many taxpayers as currently, except for small business taxpayers who may immediately deduct the cost of assets under $1,000, there is no immediate deduction for plant costing $300 or less.

Specific provisions maintain current rules for deductions for the decline in value of capital expenditure on primary production depreciating assets that are water facilities, horticultural plants and grapevines. Furthermore, the current write-off for primary production capital expenditure incurred on land care operations, electricity connections or telephone lines is maintained.

Under the UCA legislation, the existing immediate deduction for capital expenditure on exploration and prospecting, mining site rehabilitation, petroleum rent resource tax and environmental protection is retained.

The UCA will allow certain capital expenditures not currently deductible to be written off over the life of the project to which the expenditure relates. These include feasibility study costs, site preparation costs and environmental assessment costs. The UCA also provides write-off for a number of specific types of capital expenditure such as the costs of raising equity, of establishing, converting or winding up a business structure and of defending against takeovers which have not received relief in the tax system before.

The UCA will also contain a rule to prevent taxpayers obtaining artificially accelerated deductions in circumstances where they acquire the asset from an associate or where the end user of the asset does not change. To limit artificial deductions, division 42 of the Income Tax Assessment Act 1997 will be amended so that this rule commences from 10 a.m. Australian eastern standard time on 9 May 2001, as previously announced by the Treasurer.

From that time, the new owner of plant and equipment which are acquired from an associate or where the end user does not change, such as in the sale and leasing back of plant and equipment, must use the same depreciation method as the previous holder. Where the diminishing value method is used, the same effective life must be used as that which the previous owner used, while the same remaining effective life can be used where the prime cost method is used. Where the same end user does not change and taxpayers are unable to obtain information on the previous method of write-off, the diminishing value method and the commissioner's safe harbour effective life rate can be used.

The measure is principally a revenue protection measure.

Full details of the measures in this bill are contained in the explanatory memorandum. I commend the bill to the House.

Debate (on motion by Mr McClelland) adjourned.


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