House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Rt. Hon. William McMahon).

Notes on Clauses

Clause 1: Short Title and Citation.

This clause formally provides for the short title and citation of the Amending Act and the Principal Act as amended.

Clause 2: Commencement.

By sub-clause (1.) it is proposed that the Amending Act shall come into operation on the day on which it receives the Royal Assent. Sub-clauses (2.) and (3.) will, however, deem the amendments proposed by certain clauses of the Bill to have had effect as from an earlier date.

Sub-clause (2.) provides that the amendments proposed by clauses 4 and 8, 9(e), 10 to 14 inclusive and 16 shall be deemed to have had effect as from the day following the date on which the Bill was introduced into Parliament. These clauses are concerned with amendments relating to calls paid on mining shares and mining leases which are to operate as from that day.

Sub-clause (3.) will deem the amendment proposed by clause 15 to have had effect as from 23rd October, 1964. That amendment, which is of a drafting nature, is designed to clarify the effects of a provision of the Principal Act relating to leases which has applied since the date mentioned.

Clause 3: Synopsis of Act.

Section 5 of the Principal Act lists the Parts and Divisions into which that Act is divided. Clause 3 is a drafting amendment which will effect amendments in the list that are consequential upon other amendments to provisions of the Principal Act proposed by the Bill.

Clause 4: Interpretation.

By this clause, it is proposed to amend section 6 of the Principal Act which contains definitions of words and phrases used in that Act.

Paragraph (a) proposes an amendment to the definition of "apportionable deductions" which is consequential upon the proposed insertion in the Principal Act of a new section - section 77C - by clause 11 of the Bill, relating to calls paid on shares in a mining or prospecting company or an afforestation company.

The term "apportionable deductions" means, broadly, deductions of a concessional nature, including deductions of one-third of calls paid on mining or afforestation shares, which do not directly relate to the production of income. These deductions are, for certain purposes of the Principal Act, apportioned on a pro-rata basis against various classes of income. In the future, calls paid on mining or afforestation shares may be deductible under the proposed new section 77C or section 78(1.)(b) of the Principal Act - see notes on clauses 11 and 12. The amendment proposed in the definition of apportionable deductions will enable deductions allowed for calls under section 77C to be apportioned on the same basis as deductions allowed under section 78(1.)(b) where such an apportionment is required under relevant provisions of the Principal Act.

Paragraph (b) is also a drafting amendment of section 6 of the Principal Act. The term "minerals" is defined to include petroleum in order to ensure that, except where it is specifically provided to the contrary, a reference to minerals in provisions of the Principal Act relating to prospecting or mining generally will extend to petroleum.

Clause 5: Exemptions.

By this clause it is proposed to effect a drafting amendment to section 23(p) of the Principal Act that is consequential upon the amendments proposed by clause 17 of the Bill.

Section 23(p) authorises an exemption from tax of income derived by a bona fide prospector from the sale, transfer or assignment of rights to mine in a particular area for gold or any other prescribed metal or mineral subject to two provisos. The first proviso, which is being amended by this clause, reduces the amount of income which may qualify for exemption by the deductions allowed to the taxpayer for expenditure on exploration or prospecting on the area sold or assigned.

This principle will not be disturbed by the amendment proposed by clause 5. Income qualifying for exemption under section 23(p) will be determined after taking into account the relevant deductions allowed for exploration or prospecting expenditure under existing provisions of Division 10 of the Principal Act and the provisions of the proposed new Division 10 to be inserted in that Act by clause 17.

The amended provisions of section 23(p) will commence to apply in assessments based on income derived during the 1967-68 year of income.

Clause 6: Partial Exemption of Income from Certain Mining Operations.

This clause proposes a drafting amendment to section 23A of the Principal Act which exempts from tax 20 per cent of the net income derived from the carrying on of mining operations for prescribed metals or minerals in Australia or the Territory of Papua and New Guinea.

Sub-section (3.) of section 23A is designed to ensure that the exemption authorised by the section is not affected where a company's deductions for capital expenditure are reduced under section 124DA of the Principal Act. This reduction would occur where the company has elected to surrender its entitlements to deductions so that its resident shareholders may obtain deductions under section 77AA of the Principal Act for share capital subscribed to the company. The practical effect of such a reduction is to increase the company's net income for taxation purposes. In the absence of sub-section (3.), there would be a proportionate increase in the exempt income of the company.

By clause 17 of the Bill, the provisions of section 124DA are being re-enacted in section 122Q and this has necessitated a drafting amendment in section 23A which will not affect the practical operation of the section.

The amendment proposed by clause 6 will apply in assessments based on income derived during the 1967-68 income year and subsequent years.

Clause 7: Special Deduction for Investment in Manufacturing Plant.

This clause proposes drafting amendments to section 62AA of the Principal Act which authorises a special deduction ("investment allowance") of 20 per cent of capital expenditure incurred by a taxpayer on new "manufacturing plant" within the meaning of the section.

Paragraphs (b) and (c) of section 62AA(10.) apply to plant used in the mining industries.

In lieu of deductions over the estimated life of the mine, a person carrying on mining operations may elect, under section 122A of the Principal Act, to deduct capital expenditure on plant in full in the year in which the expenditure is incurred.

Section 122B of the Principal Act also has the effect of enabling the whole of the capital cost of plant for mining operations to be deducted from the assessable income of one year in certain circumstances where the plant has been purchased out of appropriations of assessable income.

Paragraph (b) of section 62AA(10.) excludes plant from the scope of the investment allowance where the mine-owner has chosen to deduct capital expenditure on it in one year in accordance with section 122A. Paragraph (c) makes a corresponding exclusion from the allowance where a deduction is allowable under section 122B for appropriated income used in the purchase of new plant.

Clause 17 of the Bill proposes that the provisions of section 122A of the Principal Act shall be re-enacted, in substance, in section 122E. That clause also proposes that the provisions of section 122B of the Principal Act shall be replaced by provisions to be included in section 122G.

Paragraph (a) of clause 7 will omit the existing reference in section 62AA(10.) to section 122A and substitute for it a reference to the new section 122E. It will also omit the existing paragraph (c) of section 62AA(10.). Changes proposed in the basis on which appropriations of income for expenditure on mining plant, etc., are to be taken into account will render paragraph (c) unnecessary.

Paragraph (b) of clause 7 will replace a reference to section 124C of the Principal Act now in section 62AA(11.) with a reference to section 122N. A purpose of section 62AA(11.) is to ensure that the investment allowance is available in respect of plant the cost of which is deductible over the life of the mine, notwithstanding the provisions of section 124C. Clause 17 of the Bill proposes that the provisions of section 124C shall be re-enacted in section 122N and this has necessitated a drafting amendment to section 62AA(11.). The practical operation of section 62AA(11.) will not be affected.

These amendments to section 62AA will commence to apply in assessments based on income derived during the 1967-68 year of income.

Clause 8: Moneys Paid on Shares for the Purposes of Petroleum Exploration.

This clause proposes drafting amendments to section 77A of the Principal Act which are consequential upon the proposed insertion by clause 11 of a new section in that Act - section 77C - relating to calls paid on mining and afforestation shares.

Section 77A authorises the allowance to residents of Australia or the Territory of Papua and New Guinea of deductions for moneys paid to a petroleum exploration company as share capital on shares issued by the company. The section applies where a petroleum exploration company that has received money paid on shares furnishes to the Commissioner a declaration that so much of those moneys as are specified in the declaration have been, or will be, expended in prospecting or mining for petroleum in Australia or the Territory of Papua and New Guinea, or on plant necessary for the treatment of that petroleum.

Provision is also made for cases where a company which has received money paid on shares does not itself expend the money in prospecting or mining for petroleum but contributes share capital to a petroleum exploration company which undertakes to spend the money for that purpose. If the appropriate declarations and undertakings are furnished, section 77A may entitle resident shareholders in the interposed company to a deduction for the share capital subscribed to it and which it, in turn, may subscribe as share capital in a petroleum exploration company.

Paragraph (a) of clause 8 will include in section 77A(11.) of the Principal Act a reference to the new section 77C which it is proposed by clause 11 to insert in that Act.

In broad terms, the effect of section 77A(11.) is that moneys deductible by shareholders in consequence of a declaration lodged by a company interposed between the shareholders and a petroleum exploration company are not also deductible from the income of the interposed company under either section 77A or section 78(1.)(b) of the Principal Act.

The amendment proposed by paragraph (a) of clause 8 will ensure that section 77A(11.) operates on the same basis where deductions are allowable under the proposed new section 77C for calls paid by the interposed company on shares in a petroleum exploration company.

Paragraph (b) of clause 8 will similarly amend section 77A(16.) of the Principal Act by inserting a reference to the proposed new section 77C in that provision.

Section 77A(16.) provides that where a deduction is allowable under section 78(1.)(b) for one-third of calls paid to a petroleum exploration company or an interposed company, a corresponding reduction is made in the deductions allowable to the shareholders under section 77A. A double deduction cannot, therefore, be allowed for calls paid by shareholders which are deductible under section 78(1.)(b).

The amendment proposed by paragraph (b) of clause 8 is designed to preserve this position in relation to calls which are, in future, deductible under the new section 77C instead of section 78(1.)(b).

The amendments proposed by clause 8 will apply to calls paid to petroleum exploration companies after the date on which the Bill was introduced into Parliament and which are deductible under the proposed new section 77C.

Clause 9: Moneys Paid on Shares for the Purposes of Certain Mining or Prospecting.

This clause proposes amendments to section 77AA of the Principal Act in consequence of the proposed insertion in the Principal Act of a new section - section 77C - by clause 11, and also the amendments proposed by clause 17.

The amendments proposed by clause 9 are generally of a drafting nature but, because of the inter-relationship between this section and Division 10 of the Principal Act, there will be some changes in the scope of the classes of capital expenditure in respect of which declarations may be lodged under section 77AA. These changes will correspond with the changes proposed by clause 17 in respect of the classes of capital expenditure that are to be subject to special deductions authorised for mining companies.

Under section 77AA, residents of Australia or the Territory of Papua and New Guinea are, in certain circumstances, entitled to deductions for moneys subscribed as paid-up capital on shares in companies whose principal business is prospecting or mining in Australia or the Territory for minerals other than gold, uranium or oil.

Entitlement to these deductions is conditional upon the company to which the capital is subscribed declaring that the money has been, or will be, used in prospecting or mining in Australia or the Territory for minerals other than gold, uranium and oil. Where a company duly makes such a declaration, the deductions which it would otherwise obtain for capital expenditure in respect of its mining operations are correspondingly reduced.

Paragraph (a) of clause 9 will omit the present definition of "mining or prospecting outgoings" and insert a new definition in its stead. The provisions of the present definition are being substantially re-enacted in the new definition which will mean, broadly, expenditure incurred by a company in connection with mining in Australia or the Territory of Papua and New Guinea for prescribed minerals.

Expenditure covered by the section will include "allowable capital expenditure" and expenditure on "exploration or prospecting" within the meaning of those terms in the proposed new sections 122A and 122J respectively which are to be inserted in the Principal Act by clause 17 of the Bill. Explanations on those two sections are given later in this memorandum.

Other classes of capital expenditure (including expenditure on facilities for transporting minerals deductible under the proposed new Division 10AAA to be inserted in the Principal Act by clause 17) are outside the scope of "mining or prospecting outgoings" for the purposes of section 77AA. Accordingly, moneys paid by shareholders as share capital in a mining or prospecting company and used by the company for the purpose of financing such expenditure will not be deductible in the hands of the shareholders under that section.

Expenditure incurred by a mining or prospecting company in acquiring a mining or prospecting right or mining or prospecting information will continue to be excluded from the scope of "mining or prospecting outgoings" for the purposes of section 77AA although, in some circumstances, the cost of such a right or information may qualify as allowable capital expenditure under the proposed new section 122A.

Paragraph (b) of clause 9 proposes an amendment of the definition of "prescribed minerals" and the insertion of a new definition - "prescribed mining operations". These definitions are inter-related.

At present, "prescribed minerals" is defined to mean minerals other than gold, uranium or oil. Gold and uranium are at present excluded because income from mining those minerals is exempt from tax. Oil is excluded because section 77A of the Principal Act applies on a similar basis as section 77AA in respect of companies whose principal business is prospecting or mining for petroleum.

The new definition will state that "prescribed minerals" means minerals obtained by "prescribed mining operations". The latter term is defined in the proposed section 122(1.) to be inserted in the Principal Act by clause 17. Broadly, it means mining operations carried on in Australia or the Territory of Papua and New Guinea in extracting minerals, other than petroleum, for the purpose of earning assessable income.

For practical purposes, the new definition of "prescribed minerals" will have the same effect as it has under the present law. However, the exemption of income from uranium mining will terminate at the end of the 1967-68 income year. As this income will then constitute assessable income, uranium will then be a prescribed mineral for the purposes of section 77AA.

Paragraphs (c) and (d) of clause 9 propose drafting amendments to section 77AA(3.) and 77AA(6.). Each of these provisions contains a reference to section 124DA of the Principal Act. That section provides for a reduction in a company's entitlements to deductions under Division 10 of the Principal Act to the extent that the company has declared moneys paid on shares so that its resident shareholders may qualify for deductions under section 77AA.

The provisions of section 124DA are, by clause 17, being re-enacted in section 122Q. This necessitates a reference to the latter section being substituted for the reference now in section 77AA(3.) to section 124DA. This will ensure that the law will operate with the same effect as at present. The reference to section 124DA in section 77AA(6.) is, as a drafting measure, being omitted as no longer necessary.

Paragraph (e) of clause 9 proposes a drafting amendment in section 77AA(7.) which is consequential upon the proposed insertion of a new section - section 77C - in the Principal Act by clause 11.

Section 77AA(7.) provides that where a deduction is allowable under section 78(1.)(b) of the Principal Act for one-third of calls paid on mining shares, an adjustment is to be made in the deduction otherwise allowable under section 77AA. This is to prevent a deduction being allowed for the same amount of moneys under each of the sections.

The purpose of the amendment to section 77AA(7.) is to ensure that this provision operates with the same effect in the future where deductions for calls paid on mining shares are allowed under the proposed new section 77C.

The amendments to section 77AA proposed by paragraphs (a), (b), (c) and (d) of clause 9 will commence to apply in assessments based on income derived during the 1967-68 year of income. The amendment proposed by paragraph (e) will apply to calls paid after the date on which the Bill was introduced into Parliament and which are deductible under the new section 77C.

Clause 10: Calls Paid by Certain Holding Companies.

This clause proposes drafting amendments to section 77B of the Principal Act which are consequential upon the proposed insertion of the new section 77C in that Act.

Section 77B permits a company that has paid calls to a mining, prospecting or afforestation company in which it beneficially owns all the paid-up capital to pass back its entitlement to a deduction under section 78(1.)(b) of the Principal Act for one-third of those calls to a company that has provided, as share capital, the moneys out of which the calls have been paid.

It is a condition for the passing back of the deduction that not less than one-half of the paid-up capital in the company that pays the calls to the mining, prospecting or afforestation company be held by the company that provided moneys to meet the calls.

A company that elects to transfer its entitlement to a deduction automatically forgoes the deduction for one-third of calls to which it would otherwise have been entitled.

The amendments to section 77B proposed by clause 10 will permit a company to transfer its entitlement to a deduction under the proposed new section 77C for one-third of calls, in the same circumstances as presently exist in relation to deductions allowable under section 78(1.)(b).

The amendments to section 77B will apply to calls paid on shares after the date of introduction of the Bill into Parliament which are deductible under the proposed new section 77C.

Clause 11: Calls Paid on Shares for the Purposes of Exploration or Prospecting for Minerals, or of Afforestation.

Introductory Note

This clause proposes the insertion in the Principal Act of a new section - section 77C - relating to moneys paid as calls on shares in mining, prospecting or afforestation companies.

Section 78(1.)(b) of the Principal Act authorises deductions for one-third of the amount of calls paid on shares in a company carrying on as its principal business mining or prospecting in Australia or the Territory of Papua and New Guinea for gold, silver, base metals, rare minerals or oil. An allowance is also available for one-third of calls paid on shares in a company whose principal business is afforestation in Australia or the Territory of Papua and New Guinea.

The new provision does not propose any change in the effect of the present law as it applies to calls paid on shares in afforestation companies. However, some fundamental changes are proposed in the law relating to calls paid on shares in a mining or prospecting company.

These changes are -

1.

The new provision will apply to calls paid on shares in a company that carries on as its principal business mining, or exploration or prospecting for, any mineral obtainable by mining, or both of these activities.

2.

The deduction will be available in respect of moneys paid as calls that are expended by the company on exploration or prospecting for all minerals obtainable by mining; minerals obtainable by mining include coal and natural gas which are excluded from the scope of section 78(1.)(b).

3.

Entitlement to the deduction will be conditional upon the company to which calls are paid declaring to the Commissioner of Taxation that the moneys received as calls have been, or will be, expended in exploring or prospecting for minerals obtainable by mining.

4.

A deduction will not be allowable for calls paid on redeemable shares.

The new provision will apply to authorise deductions for calls paid after the date on which the Bill was introduced into Parliament except where the calls are paid -

(a)

on shares issued on or before that date;

(b)

on shares issued after that date in accordance with an agreement made on or before that date or an announcement made on or before that date; or

(c)

on redeemable shares.

Calls paid on shares falling within the categories mentioned in (a) and (b) above will continue to be deductible under the provisions of section 78(1.)(b) of the Principal Act. However, calls paid on redeemable shares after the date of introduction of the Bill will, irrespective of the time at which the shares were issued, not qualify for deduction under either section 78(1.)(b) or the proposed section 77C.

Notes on each of the sub-sections of the proposed new section 77C follow.

Sub-section (1.) defines certain expressions used in the section.

"Afforestation company": As in the present law, this term will mean a company which is carrying on, as its principal business, afforestation in Australia or the Territory of Papua and New Guinea.

"Australia" is defined as including the Territory of Papua and New Guinea. This definition will ensure that the allowance will extend to calls paid on shares in companies carrying on exploration or prospecting for minerals or afforestation in the Territory.

"Calls paid on shares": This expression will specify the calls that may qualify for deduction under the new section. The section will apply to calls paid after the date of introduction of the Bill but not including calls paid -

(a)

in respect of shares issued on or before the date of introduction of the Bill;

(b)

in respect of shares issued after that date, if the terms of the issue were announced on or before that date or the shares were issued in pursuance of an agreement entered into on or before that date; or

(c)

in respect of redeemable shares.

The availability of deductions for calls paid on shares (other than redeemable shares) issued on or before the date of introduction of the legislation, or issued after that date in accordance with an agreement or an announcement made on or before that date, will continue to be determined under section 78(1.)(b) of the Principal Act.

"Company" is defined to include a syndicate. Deductions for calls paid by shareholders in a syndicate (as defined) will, therefore, qualify for deduction where the requirements of the section are met by the syndicate.

"Exploration or prospecting": This expression is designed to encompass the various operations carried out in searching for mineral deposits. It will include geological mapping, geophysical surveys, systematic search for areas containing minerals and search by drilling or other means for ore deposits within those areas. It will also embrace the search for ore within or in the vicinity of an ore-body by drives, shafts, cross-cuts, winzes, rises and drilling. Normal mining operations carried out in the course of working a mine are outside the scope of the definition.

"Mining or prospecting company": This definition specifies the kind of company that may make a declaration for the purposes of section 77C. It will mean a company or syndicate that carries on as its principal business mining for minerals or exploring or prospecting for minerals in Australia or in the Territory of Papua and New Guinea or a company or syndicate whose principal business embraces both these activities. The term will also include a company that the Commissioner of Taxation is satisfied will carry on such activities as its principal business. This will enable the section to apply, for example, where a newly incorporated company raises capital to search for mineral deposits with a view to commencing mining operations.

"Prescribed outgoings": This expression is a drafting measure and will mean expenditure by a mining or prospecting company or syndicate on exploration or prospecting (as defined) in Australia or the Territory of Papua and New Guinea for minerals obtainable by mining.

"Syndicate" is defined to mean a partnership or co-adventure having a share capital and registered under a Commonwealth or State law relating to mining partnerships.

Sub-section (2.) will have application to a company whose principal business is mining or prospecting in Australia or the Territory of Papua and New Guinea for minerals and which has received calls paid on its shares. Such a company may lodge with the Commissioner of Taxation a written declaration that it has expended, or proposes to expend, such of those calls as are specified in the declaration on exploration or prospecting in Australia or the Territory for minerals. A declaration, signed by the public officer of the company (or, in the case of a syndicate, by the members of the syndicate) may be lodged within one month of the end of the year of income of the company in which it received the calls. The Commissioner is empowered to extend the time in which a declaration may be lodged.

The lodging of a declaration by the company is a prerequisite to the allowance to shareholders of deductions for one-third of the calls paid which are used by the company in exploring or prospecting for minerals.

Sub-section (3.) is the operative provision of the section, authorising the allowance of a deduction for one-third of the amount of calls paid to an afforestation company or to a mining or prospecting company. In the latter case, the deduction is dependent upon a declaration having been lodged by the company under sub-section (2.).

The allowance of any deduction under this sub-section is also subject to the provisions of sub-section (11.) of section 77A, section 77B and section 79C. These provisions are explained in the notes on clauses 8, 10 and 13 of the Bill.

Sub-section (4.) relates to cases in which a declaration has been made by a company and, before any deductions are allowed to shareholders, the Commissioner is not satisfied that the amount specified in the declaration has been, or will be, expended by the company on prescribed outgoings. In such a case, the Commissioner may inform the company in writing that he is not so satisfied. Where this course is followed, the amount of the deductions allowable to shareholders of the company for calls paid on shares will be reduced in the proportion which the amount the Commissioner is not satisfied has been or will be expended on prescribed outgoings bears to the total amount specified in the declaration.

Where deductions have been allowed in the assessments of shareholders for calls specified in a declaration and the Commissioner becomes satisfied that moneys included in the declaration have not been, or will not be, expended in accordance with the declaration, the procedure to be followed is set out in sub-section (5.).

Should a taxpayer be dissatisfied with the Commissioner's determination under sub-section (4.), he will have the usual rights of objection. On reference to a Board of Review, it is open to the Board to substitute its determination for that of the Commissioner.

Sub-section (5.) will apply where, after shareholders have been allowed deductions in their assessments for calls paid on shares in a company in pursuance of a declaration lodged by the company under sub-section (2.), the Commissioner becomes satisfied that all or some of the calls specified in the declaration have been dealt with otherwise than in accordance with the declaration.

In these cases, an amount equal to one-third of the amount of calls specified in the declaration that have been dealt with by the company otherwise than in accordance with its declaration is to be included in the assessable income of the company. The amount will be included in assessable income of the year of income in which the moneys were expended in a manner not in accordance with the declaration. The amount so included will correspond with the deductions allowed to shareholders and to which, because of the company's actions in expending the calls otherwise than in accordance with its declaration, the shareholders were not entitled.

This procedure is designed as a safeguard to the revenue. In some cases, many hundreds of shareholders may be involved and it would not be practicable to amend all of their assessments to disallow the deductions incorrectly allowed by the Commissioner in the belief that the company would expend the calls specified in its declaration on exploration or prospecting for minerals.

Sub-section (6.) is a machinery provision that will have application only where it is necessary to trace moneys specified in a declaration and the manner in which the moneys have been dealt with cannot be readily ascertained from the records of the company that made the declaration. In these circumstances, the manner in which the money has been dealt with may be determined by the Commissioner.

Without a provision of this nature, it may, in some circumstances, be impracticable for the Commissioner to determine the use to which moneys specified in a declaration have been put and the application of the section would be seriously impeded. This sub-section provides a means of overcoming that difficulty.

A taxpayer whose assessment is affected by the Commissioner's determination will have the right of objection and appeal. In the event of a reference to a Taxation Board of Review, the Board would have power to substitute its own opinion for that of the Commissioner.

Sub-section (7.) is also a machinery provision designed to ensure that a declaration made by a company under section 77C will not be rendered invalid for the reason only that it specifies moneys in excess of those actually qualifying for inclusion in a declaration under the section. For example, a company may erroneously include in a declaration application or allotment moneys. In such cases, the declaration will be valid as to the moneys representing calls paid on shares in the company which do come within the scope of the section.

The new section 77C proposed by clause 11 will apply to calls paid on shares after the date on which the Bill was introduced into Parliament subject to the exceptions explained in relation to the definition of "calls paid on shares" in sub-section (1.) of the section.

Clause 12: Gifts, Calls on certain Shares, Pensions, etc.

By clause 12, it is proposed to amend section 78(1.)(b) of the Principal Act which authorises a deduction for one-third of calls paid on shares in a company whose principal business is mining or prospecting for gold, silver, base metals, rare minerals or oil, or in a company whose principal business is afforestation.

As explained in the notes on clause 11, calls paid on shares issued after the date of introduction of the Bill into Parliament will, in the future, be deductible in accordance with the proposed new section 77C instead of under section 78(1.)(b) as at present.

It is, however, proposed that section 78(1.)(b) shall continue to apply to calls paid on shares (other than redeemable shares) where the shares were issued -

(a)

on or before the date the Bill was introduced into Parliament; or

(b)

after that date in accordance with an agreement or an announcement made on or before that date.

The amendment proposed to section 78(1.)(b) is designed to give effect to that proposal and will apply to calls paid on shares after the date of introduction of the Bill into Parliament.

Clause 13: Limitation on Certain Deductions.

This clause proposes a drafting amendment to section 79C of the Principal Act which is consequential upon the proposed insertion in that Act of a new section - section 77C - by clause 11.

Section 79C provides that the aggregate of the deductions allowable under certain sections of the Principal Act, including section 78, shall not exceed the amount of income that remains after deducting from assessable income all other allowable deductions, except losses of previous years and certain deductions for capital expenditure allowable in relation to prospecting and mining operations. The amendment proposed will ensure that section 79C applies in the future to calls deductible under the new section 77C on the same basis as it now applies to calls deductible under section 78(1.)(b) of the Principal Act.

This amendment will apply to calls paid after the date on which the Bill was introduced into Parliament which are allowable as deductions under the proposed new section 77C.

Clause 14: Double Deductions.

This clause proposes a drafting amendment to section 82 of the Principal Act which is also consequential upon the proposed insertion in that Act of a new section - section 77C.

Section 82 operates to prevent a deduction being allowed under more than one provision of the Principal Act in respect of the one amount of expenditure. The section also provides that in ascertaining the profit or loss on the sale of property, where that profit or loss will be taken into account in determining the taxpayer's taxable income, no deduction is to be allowed in respect of expenditure that has already been allowed as a deduction. However, deductions allowed under section 78(1.)(b) of the Principal Act for calls paid on shares (and certain other deductions) are not subject to this general rule in the ascertainment of a profit or loss on the sale of shares.

The amendment proposed by clause 14 is designed to preserve the principles of the existing provisions where deductions are, in future, allowed for calls under the proposed new section 77C.

The amended provisions of section 82 will apply to calls paid on shares after the date of introduction of the Bill into Parliament which are deductible under section 77C.

Clause 15: Application of Division. (Div. 4 - Leases).

Clause 15 proposes a drafting amendment to section 83AA of the Principal Act by omitting sub-section (5.) of that section and inserting a new sub-section in its stead.

In broad terms, section 83AA limits the operation of the lease provisions of the Principal Act as from 22nd October, 1964.

Sub-section (5.) of section 83AA, however, provides, in effect, that section 83AA does not affect the operation of the lease provisions in respect of mining leases and certain Crown leases for primary production. The drafting amendment proposed is designed to clarify the application of sub-section (5.) in the light of amendments to provisions of the Principal Act relating to mining leases proposed by clause 16 of the Bill.

Clause 16: Mining Leases.

By this clause it is proposed to amend section 88B of the Principal Act which relates to mining leases and leases granted for mining purposes.

Section 88B provides that the general lease provisions contained in Division 4 of Part III. of the Principal Act shall not apply to a mining lease or any other lease granted for mining purposes unless the parties to the grant, assignment or surrender of such a lease elect that the general lease provisions shall apply.

The application of the provisions of Division 4 to leases (other than mining leases and certain Crown leases for primary production) was discontinued as from 22nd October 1964 except in respect of leases current at that date or coming into existence after that date in pursuance of an agreement entered into on or before that date.

It is proposed that mining leases will be placed in the same position, so far as the income tax law is concerned, as other leases except where the mining lease is current at the date on which the Bill was introduced into Parliament, or comes into existence after that date in pursuance of an agreement entered into on or before that date. This will be done by withdrawing the option that the parties to the grant, assignment or surrender of a mining lease may now exercise to have the general lease provisions applied in respect of such a lease.

Special provisions are proposed for the purpose of preserving a taxpayer's entitlements under section 88B in relation to past transactions involving a mining lease. Where the provisions of section 88B and the general provisions of Division 4 continue to operate for a current mining lease, they will generally apply in the same manner as they do at present. These broad observations should, however, be read subject to the more detailed notes that follow.

Paragraphs (a), (b) and (c) of sub-clause (1.) of clause 16 will effect drafting amendments in sub-sections (1.), (2.) and (3.) of section 88B that are consequential upon the amendments to that section proposed by paragraph (d) of that sub-clause. The practical operation of the sub-sections, which provide, in effect, that unless an election is made under sub-section (5.) of section 88B, the general lease provisions of Division 4 do not apply to a mining lease, will not be affected by the amendments.

Paragraph (d) of sub-clause (1.) will omit sub-section (5.) of section 88B and insert five new sub-sections - sub-sections (5.), (5A.), (5B.), (5C.) and (5D.) - in its stead. The purpose of this amendment is, broadly, to withdraw the option which the parties to a mining lease may now exercise to have the general lease provisions of Division 4 applied to the grant, assignment or surrender of the lease. More detailed explanations are given in the following notes on each of the proposed new sub-sections.

Sub-section (5.) will, as at present, enable the parties to a grant, assignment or surrender of a mining lease to elect that section 88B shall not apply. The effect of such an election is that the general lease provisions of Division 4 operate in respect of the grant, assignment or surrender unless the election is affected by provisions of the four succeeding new sub-sections to be inserted in section 88B by clause 16. An election under sub-section (5.) must be in writing, signed by the parties to the transaction, and lodged with the Commissioner within two months after the end of the income year in which the transaction occurred or within such further period as is allowed by the Commissioner.

Sub-section (5A.) modifies the operation of sub-section (5.) by providing that an election shall not be made under that sub-section in relation to a lease other than a lease granted on or before, or in pursuance of an agreement entered into on or before, the date on which the Bill was introduced into Parliament. For the purposes of this memorandum it is convenient to refer to such a lease as a current mining lease.

An effective election under sub-section (5.) which would result in a premium paid on the grant of a mining lease being deductible to the lessee and assessable as income to the lessor may, therefore, only be made in respect of a lease current at the date of introduction of the Bill or a lease granted after that date under an agreement entered into on or before that date.

Sub-section (5B.) states the circumstances in which an election under sub-section (5.) in relation to the assignment or surrender of a mining lease will be effective for the purposes of having the lease provisions of Division 4, other than section 85, applied to that assignment or surrender. The operation of section 85 in that Division is subject to the new sub-section (5C.).

An effective election may be made only where a current mining lease is assigned or surrendered on or before the date on which the Bill was introduced into Parliament or, where the lease is assigned or surrendered after that date, in pursuance of an agreement entered into on or before that date.

One effect of sub-section (5B.) is that where an assignment or surrender does satisfy these conditions, an election under sub-section (5.) will result in all the general provisions of Division 4 applying to the transaction. Thus, any amount received for such an assignment or surrender that is a premium for the purposes of the Division will constitute assessable income. Similarly, any premium which is paid for the assignment or surrender will be deductible.

The other effect of this sub-section is that, except for the purposes of section 85, an election made under sub-section (5.) will not be effective in respect of an assignment or surrender of a mining lease where the assignment or surrender was agreed to after the date of introduction of the Bill. The basis of application of section 85 in relation to such a transaction is explained in the notes on sub-section (5C.) that follow.

Sub-section (5C.) is designed to continue, in specified circumstances, the operation of section 85 of the Principal Act in relation to an assignment or surrender of a current mining lease if the parties lodge an election under sub-section (5.) of section 88B.

Section 85 is a provision of Division 4 that, broadly stated, authorises certain deductions to be allowed in a year of income during which a lease is assigned or surrendered. In such an event, the taxpayer who assigns or surrenders the lease is allowed a deduction for any amount paid by him to acquire the lease, in making improvements on the land subject to the lease, or to obtain the assent of the lessor to the assignment or surrender. The deduction under section 85 is available for so much of that amount as has not already been allowed as a deduction to the taxpayer under other provisions of Division 4.

By virtue of sub-section (5C.), an election under sub-section (5.) of section 88B will not be effective for the purposes of section 85 if the election is in respect of an assignment or surrender that is made after the date of introduction of the Bill, unless the assignment or surrender is made by a person -

(a)

who held the lease at that date;

(b)

who obtained the lease under an agreement entered into on or before that date; or

(c)

who succeeded to the lease on the death of a person who held the lease at that date or who obtained it under an agreement entered into on or before that date.

In addition to this primary condition for the allowance of future deductions under section 85 in respect of an assignment or surrender of a current mining lease, paragraphs (a) and (b) of sub-section (5C.) provide further limitations on the application of that section in certain circumstances.

Paragraph (a) of sub-section (5C.) provides that an election under sub-section (5.) will have no effect for the purposes of the application of section 85 to an amount spent on improvements, made without any legal obligation under the lease or the written consent of the lessor, where the assignment or surrender of a current mining lease was made after the date of introduction of the Bill, unless the transaction occurs in pursuance of an agreement entered into on or before that date. An effective election may, however, continue to be made for the purposes of section 85 in relation to improvements on a current mining lease assigned or surrendered after the date of introduction of the Bill where those improvements were made with the written consent of the lessor, or under a covenant in the lease, or in consideration for the grant of the lease.

Paragraph (b) of sub-section (5C.) refers to a provision of section 85 - paragraph (c) of sub-section (1.) of that section - that provides a deduction on an assignment or surrender in relation to an amount paid to obtain the assent of the lessor to the assignment or surrender.

Generally, these payments are made at the time of assignment or surrender. Since one of the purposes of the amendments to section 88B is to preserve to a taxpayer the right to deductions in respect of a transaction into which he entered, or to which he was committed, on or before the date of introduction of the Bill, paragraph (b) of sub-section (5C.) precludes a deduction of such an amount on the assignment or surrender of a current mining lease, unless the amount was paid on or before that date or in pursuance of an agreement entered into on or before that date.

Sub-section (5D.) refers to improvements made by a lessee after the date of introduction of the Bill on land subject to a current mining lease where those improvements were made with the written consent of the lessor. It provides that certain provisions of Division 4, viz., sections 85, 87 and 88, are not to apply in relation to such improvements except in specified circumstances.

Paragraph (a) ensures that the parties to a mining lease may elect under sub-section (5.) that the sections mentioned will apply in relation to such improvements if they are, or were, made with the written consent of the lessor given on or before the date of introduction of the Bill.

Paragraph (b) provides that these sections may also continue to apply by reason of an election under sub-section (5.) where the Commissioner is satisfied that the lessor had agreed, on or before the date of introduction of the Bill, to give his written consent to the making of the improvements. It will not matter for this purpose whether the lessor had agreed absolutely to give his written consent or had agreed to do so subject to conditions. An example of a conditional agreement would be where the lessor had agreed to give his written consent subject to his being satisfied with the plans and specifications relating to the proposed improvements.

The provisions of sections 85, 87 and 88 may not apply, however, in the circumstances described, unless the lessor and the lessee make a joint application to the Commissioner in writing to be allowed a further period after the date of introduction of the Bill for the written consent to be given and the Commissioner approves. The Commissioner is authorised to approve such further period as he considers reasonable.

The paragraph requires that the joint application of the lessor and lessee be made within sixty days of the date of introduction of the Bill or within such further time as the Commissioner allows.

Where the conditions in sub-section (5D.) are satisfied, an election under sub-section (5.) in respect of a current mining lease will have the following effects -

(a)

expenditure on the improvements will, subject to the provisions of section 88, be allowed as deductions to the lessee over the appropriate period of the lease in accordance with that section;

(b)

in the event of an assignment or surrender of the lease by a person who was the lessee on or before the date of introduction of the Bill or who became the lessee in pursuance of an agreement made on or before that date, any balance of expenditure allowable but not allowed in accordance with section 88, will be allowable in accordance with section 85; and

(c)

there will be included in the assessable income of the lessor, in accordance with section 87, instalments of the estimated value of the improvements as at the end of the period for which the lease was granted.

Sub-section (5D.) will not affect the operation of the relevant provisions of Division 4 in relation to improvements effected by a lessee on land subject to a current mining lease where the improvements were required to be made under the terms of the lease or as consideration for the grant of the lease. If an election is made under sub-section (5.) of section 88B, sections 85, 87 and 88 will continue to apply in relation to such improvements, whether made before or after the date on which the Bill was introduced.

Paragraph (e) of clause 16 provides for a drafting amendment in sub-section (6.) of section 88B of the Principal Act which is consequential upon the proposed insertion of four additional sub-sections in that section.

Sub-clause (2.) of clause 16 is a saving provision which provides that an election under sub-section (5.) of section 88B of the Principal Act shall be deemed to be an election made under the proposed new sub-section (5.) which is to be inserted by this clause. This provision will ensure that a valid election lodged under the present law continues to have effect for the purposes of the general lease provisions.

Clause 17: General Mining and Transport of Certain Minerals.

This clause proposes the repeal of Division 10 of the Principal Act and the insertion of two new Divisions - Division 10 and Division 10AAA. The new Division 10 will relate to capital expenditure incurred in carrying on general mining operations and to exploration and prospecting expenditure. Division 10AAA will provide for deductions in respect of capital expenditure incurred on certain facilities used to transport minerals and products of minerals. Neither of these two Divisions will apply to petroleum mining operations or the transport of petroleum.

Division 10: General Mining.

Introductory Note

The general scheme of Division 10 of the Principal Act is to authorise deductions for capital expenditure on necessary plant, development of the mining property and housing and welfare for mine employees and their dependants incurred by a mining enterprise in connection with the carrying on of mining operations upon a mining property. Deductions are also provided for exploration and prospecting expenditure.

Expenditures, other than expenditure on exploration or prospecting, covered by Division 10 may be deducted on any one of several different bases, at the option of the mine-owner -

(a)

annual deductions based on the lesser of the estimated life of the mine or 25 years;

(b)

deduction for expenditure, other than housing and welfare, in the year in which it is incurred;

(c)

deduction for income appropriated for capital expenditure, other than on housing and welfare;

(d)

annual allowance for depreciation of necessary plant;

(e)

deduction of expenditure on housing and welfare over five years.

Expenditure on exploration and prospecting is deductible in the year it is incurred up to the amount of net income earned from a mining business. The balance is allowable as deductions over the life of the mine.

The amendments proposed will not disturb the principles of the provisions under which deductions may be allowed on the various bases described. The amended provisions will, however, specify in some detail the classes of capital expenditure which may qualify for deduction under the proposed new Division 10 and the classes of expenditure which are outside the scope of the Division.

In broad terms, capital expenditure eligible for deduction under the proposed new Division 10 will include -

(a)

expenditure in carrying on mining operations on a mining property for the extraction of minerals (including the preparation of a site for such operations) and on buildings, other improvements and plant which are necessary for such operations;

(b)

expenditure in providing, or contributing to the cost of providing, water, light, power, access roads or communications to the site of the extractive mining operations;

(c)

expenditure on buildings and plant for use in cleaning, leaching, crushing, grinding, breaking, screening, grading or sizing of minerals and for use in concentration of minerals by a gravity, magnetic, electrostatic or flotation process;

(d)

expenditure on buildings or other improvements for use directly in connection with the storage of minerals and products of the treatment of minerals in relation to the operation of the plant referred to in (c) above;

(e)

subject to certain limits, expenditure incurred in acquiring a mining or prospecting right or mining or prospecting information up to an amount specified in a notice given to the Commissioner by the parties to the transaction;

(f)

the cost of providing housing and welfare facilities at, or at a place adjacent to, the mine site for the mine employees and their dependants;

(g)

expenditure on exploration or prospecting for minerals obtained by mining operations.

Deductions under the proposed new Division 10 will not, however, be available for capital expenditure incurred in relation to -

(a)

plant used for sintering or calcining or for the production of, or processes carried on in connection with the production of alumina, or of pellets or other agglomerated forms of iron;

(b)

ships, railway rolling stock or road vehicles, or railway lines, roads, pipe-lines or other facilities for the transport of minerals or products of minerals, other than transport wholly within the site of extractive mining operations;

(c)

plant, buildings or other improvements for use in connection with, or works carried out in connection with, the establishment, operation or use of a port;

(d)

an office building that is not situated at or adjacent to the site of extractive mining operations.

Special transitional provisions will preserve to a mine-owner any entitlements that he may have to deductions under the existing provisions of Division 10 of the Principal Act in respect of capital expenditure which is not deductible under the proposed new provisions where the expenditure was incurred -

(a)

after the close of the year of income that ended on the 30 June 1967 and on or before the date of introduction of the Bill into Parliament; or

(b)

after the date of introduction of the Bill in accordance with a contract made on or before that date.

Where expenditure incurred after the end of the year of income that ended on the 30 June 1967, and on or before the date of introduction of the Bill, qualifies for deduction under the proposed new provisions of Division 10 but is not eligible for deduction under the existing provisions, it will be deductible under the new provisions for the 1967-68 income year.

Explanations of each of the sections in the proposed new Division 10 follow.

Section 122: Interpretation.

Sub-section (1.) of this section contains definitions of terms used in the Division to facilitate drafting and interpretation.

"Australia" is defined as including the Territory of Papua and New Guinea. This will ensure that the proposed new Division 10 applies to allowable capital expenditure incurred in carrying on mining operations in the Territory of Papua and New Guinea for the purpose of earning assessable income.

"Concentration" is defined to mean concentration by a gravity, magnetic, electrostatic or flotation process. The definition, which is relevant to the later definition of "treatment", will encompass the removal of less valuable parts of ore by any of the processes mentioned.

"Housing and welfare": This term is defined to have the same effect as under the present law. It will include residential accommodation and welfare facilities provided by the taxpayer at, or at a place adjacent to, the site of extractive mining operations, for the benefit of employees of the taxpayer working on that site and for dependants of those employees. It will also include works carried out directly in connection with such accommodation or facilities, such as the provision of water, light, power, access roads or communications. Housing and welfare facilities provided away from the vicinity of the mine site for employees not working on that site will not qualify as allowable capital expenditure.

"Mining or prospecting information" is defined to mean geological, geophysical or technical information that relates to the presence, absence or extent of mineral deposits (other than petroleum) in an area, or is likely to be of assistance in determining such facts, and which has been obtained by mining or exploration or prospecting - see also notes on the next definition.

"Mining or prospecting right": This term will mean an authority, licence, permit or right to mine or prospect for minerals in a particular area. It will also include a lease under the terms of which the lessee is entitled to mine or prospect for minerals. The definition will extend to an interest in such an authority, licence, permit, right or lease. For the purposes of the provisions relating to the acquisition by a person of a mining or prospecting right or mining or prospecting information, the definition also includes any rights in respect of buildings or other improvements on the land concerned or used in connection with operations on the land concerned, that are acquired with the mining or prospecting right - see notes on section 122B later in this memorandum.

"Prescribed mining operations": This term is defined as mining operations on a mining property in Australia or the Territory of Papua and New Guinea for the extraction of minerals, other than petroleum, from their natural site. The operations must be carried on for the purposes of gaining or producing assessable income. It is the intention of this definition to cover the actual extractive mining operations only. Although petroleum is the only mineral specifically excluded, the fact that the operations must be carried on for the purpose of gaining or producing assessable income will mean that any mineral, the income from mining which is wholly exempt, (e.g. gold) is also excluded.

"Prescribed purposes": This definition is a drafting measure to facilitate references in the proposed new Division 10 to relevant provisions of the present Division which will continue to have effect in the future. The definition has particular application in applying the provisions of the proposed new section 122K on the termination of use of property for mining purposes.

Property" is defined as including a mining or prospecting right for the purposes of the provisions of the proposed new section 122K that apply where property which has been used in the carrying on of mining operations is disposed of, lost or destroyed, or has ceased to be used for mining purposes. It is also relevant in the calculation of the residual capital expenditure of a mine owner in accordance with the provisions of the proposed new section 122C - see notes on those sections later in this memorandum.

"The Income Tax Assessment Act 1936-1967" is defined as including the Income Tax Assessment Act 1936 as amended up to and including the Income Tax Assessment Act (No.4) 1967. This definition is also a drafting measure to facilitate reference to this Act throughout the provisions of the proposed new Division 10.

"Treatment": This term is defined as including cleaning, leaching, crushing, grinding, breaking, screening, grading or sizing a mineral and concentration of a mineral by a gravity, magnetic, electrostatic or flotation process. It also includes any other treatment applied to a mineral where that treatment is applied before concentration or would, if the mineral had required concentration, have been applied before the concentration. Sintering or calcining, or the production of alumina or of pellets or other agglomerated forms of iron will be excluded from the term "treatment" for the purposes of the proposed new Division 10. The definition is associated with the provisions of the proposed new section 122A which will include expenditure on plant and certain buildings and other improvements used in connection with the treatment (as defined) of a mineral in the categories of capital expenditure that may qualify for the special deductions available to mining enterprises.

Sub-section (2.) is a drafting measure. Its purpose is to ensure that, where appropriate, a reference to deductions allowed or allowable under the proposed new Division 10 shall be read as including a reference to deductions allowed or allowable under the existing provisions of Division 10 of the Principal Act. The sub-section is important in the application of those provisions of the proposed new Division 10 in which account must be taken of deductions allowed or allowable in respect of particular items of capital expenditure irrespective of whether those deductions are allowed or allowable under that Division or under the present law.

Sub-section (3.) provides for the case where a taxpayer carries on prescribed mining operations on two or more mining properties. In such a case the relevant provisions of the proposed new Division 10 will generally be applied to each of these properties as if it is the only property on which the taxpayer is engaged in prescribed mining operations. For this purpose, any amounts of expenditure or any other amounts that relate to two or more of those properties is to be apportioned in a reasonable manner. For example, there may be a crushing plant or other eligible plant used to treat ores from two separate mining properties operated by the one taxpayer. The cost of that treatment plant is to be apportioned between the two properties for the purpose of calculating the deductions allowable under the proposed new Division 10 in respect of each property.

Section 122A: Allowable Capital Expenditure.

Section 122A specifies the categories of capital expenditure that will qualify for deduction under the proposed new Division 10 and those that will not so qualify for these deductions.

The section is, in effect, an expanded definition of "allowable capital expenditure". A general test that applies to all the categories of capital expenditure which may qualify for deduction is that the expenditure must be incurred by a person who is engaged in, or preparing to engage in, prescribed mining operations.

Sub-section (1.) of section 122A will specify particular classes of expenditure that may qualify as allowable capital expenditure.

Paragraph (a) includes capital expenditure of a general kind incurred by a mine-owner in carrying on "prescribed mining operations". As already explained, this term covers the process of extracting a mineral from its natural site by mining operations for the purpose of earning assessable income. Expenditure on opening up the ore body or on the construction of drives in removing the ore and other expenditure of a like nature will qualify under this paragraph. In addition, the paragraph specifically provides for the inclusion in allowable capital expenditure of expenditure -

(i)

in preparing a site for such operations, e.g., the clearing of a site, removal of over-burden, etc.;

(ii)

on buildings, other improvements or plant necessary for the carrying on by the taxpayer of such operations, e.g., work shops, mine offices, storage facilities, drilling equipment, bulldozers;

(iii)

in providing, or contributing to the cost of providing, water, light or power for use on the site, or access roads or communications to the site of the extractive operations, e.g., reservoirs, power plants, telephone lines, capital contributions to a local authority for the provision of water or power supplies;

(iv)

on housing and welfare at or adjacent to the mine site for employees working on the site and their dependants. The meaning of "housing and welfare" has been discussed in the notes on the definition of this term in section 122.

Paragraph (b) includes expenditure on plant for use primarily and principally in the treatment of minerals mined by the taxpayer. "Treatment" is a defined term and, broadly speaking, covers all processes applied to the mineral after extraction, up to and including the concentration stage.

There is no restriction on the location of the treatment plant. It may be located at or adjacent to the mine site or it may be located many miles from that site. Sintering or calcining, or the production of alumina, or of pellets or other agglomerates of iron, is specifically excluded from the definition of "treatment". Accordingly, expenditure on plant used for these processes or for other processes following concentration of a mineral will not qualify for the special deductions allowable to mining enterprises.

Paragraph (c) brings within the scope of the proposed new Division 10, expenditure on buildings or plant for use directly in connection with the operation or maintenance of eligible treatment plant. This will include buildings housing the treatment plant and associated workshops and workshop plant. The paragraph also provides that the cost of buildings or other improvements that are to be used directly in connection with the storage of minerals (both before and after treatment) in relation to the operation of that plant is to qualify as allowable capital expenditure.

Paragraph (d) provides for the inclusion in allowable capital expenditure of the cost of acquiring a mining or prospecting right or mining or prospecting information. The deduction available is limited to so much of the cost as is specified in a notice given to the Commissioner under section 122B. It is also limited, broadly, to so much of the relevant capital expenditure of the vendor that has not been allowed as deductions plus any amount assessable to the vendor in respect of the transaction. This is explained in greater detail in the notes on section 122B.

Sub-section (2.) of section 122A will specifically exclude certain categories of capital expenditure from allowable capital expenditure for the purposes of the proposed new Division 10.

Paragraph (a) excludes the cost of ships, railway rolling stock or road vehicles, or railway lines, roads, pipe-lines or other facilities for use wholly or partly for the purpose of transporting minerals, or products of minerals. Normal depreciation allowances will be available in respect of ships, railway rolling stock or road vehicles under the general depreciation provisions of the Principal Act. In addition, the proposed new Division 10AAA will provide for deductions over a ten year period for the cost of railway lines, roads, pipe-lines or other facilities used primarily and principally for transporting minerals. Paragraph (a) does not operate to exclude from allowable capital expenditure the cost of any of these items which are used wholly within the site of the extractive mining operations. For example, the cost of vehicles used around the mine site exclusively will be within the scope of the special deductions authorised by the proposed new Division 10.

Paragraph (b) excludes expenditure on plant, buildings or other improvements for use in connection with, or on any works carried out in connection with, the establishment, operation or use of a port or other facilities for ships. This exclusion will cover such items as housing and other township facilities for port employees, wharves and wharf plant, roads and other improvements, harbour surveys and dredging.

Paragraph (c) excludes expenditure on an office building that is not situated at or adjacent to the site of a prescribed mining operation carried on by the taxpayer. Thus, an office building situated away from the mine site at, say, a port or in a city is not eligible for the allowance. However, the cost of an office building at or adjacent to the mine site and used by employees for the purposes of the prescribed mining operations may qualify as allowable capital expenditure.

Section 122B: Purchase of Mining or Prospecting Right or Information.

This section relates to the acquisition of a "mining or prospecting right" or "mining or prospecting information". The meanings of these terms have been explained in the notes on section 122.

As previously explained in relation to section 122A(1.)(d), capital expenditure incurred by a taxpayer in acquiring such a right or information from another person may, within certain limits, be included in the allowable capital expenditure of the purchaser for the purposes of the proposed new Division 10. This course is followed only where an appropriate notice is given to the Commissioner by the vendor and the purchaser. Broadly, the practical effect of the notice will be to transfer to the purchaser of a right or information the entitlement of the vendor to have the relevant expenditure deducted over the life of the mine.

Sub-section (1.) permits a purchaser and a vendor of a mining or prospecting right or mining or prospecting information to give notice to the Commissioner that they have agreed that so much of the amount paid for the right or information as is specified in the notice is to be included in the allowable capital expenditure of the purchaser. The purchaser must acquire the right or information for the purpose of carrying on prescribed mining operations or exploration or prospecting for minerals obtainable by those operations. A right for, or information relating to, petroleum prospecting or mining will be excluded from the operation of section 122B. Deductions for the cost of such a right or information may be allowed under Division 10AA of the Principal Act which provides the code for the taxation of petroleum mining companies.

Sub-section (2.) states circumstances in which the amount to be included in the allowable capital expenditure of the purchaser of a right or information may be less than the amount specified in the notice. This will occur where the amount so specified exceeds the sum of amounts referred to in paragraphs (a) to (d) of the sub-section.

Paragraph (a) refers to the amount of the capital expenditure (other than expenditure on plant or on exploration or prospecting) incurred by the vendor in relation to the area which is the subject of the right or to which the information relates. The amount to be taken into account for the purposes of the section is the amount of the relevant expenditure that would have been included in the residual capital expenditure of the vendor as at the end of the year of income in which the transaction occurs if the notice (or a notice in relation to a subsequent sale of a right or information during that year) had not been given to the Commissioner.

In broad terms, the amount involved will be so much of the residual capital expenditure of the vendor as was incurred in developing a mine situated on the area which is the subject of the right or to which the information relates. Expenditure on buildings and improvements, including housing and welfare, will not, however, be taken into account unless the purchaser of the right acquires them, or an interest in them, when he purchases the right - see notes on sub-section (3.).

The undeducted cost of mining plant is not taken into account because it may be acquired by any person independently of a transaction involving a mining or prospecting right. The purchase price of such plant may, therefore, qualify as allowable capital expenditure under the general provisions of the proposed new section 122A. Exploration or prospecting expenditure included in the residual capital expenditure of the vendor is taken into account under paragraph (b) of the sub-section.

Paragraph (b) refers to exploration or prospecting expenditure (other than expenditure on plant) incurred by the vendor of the right or information that has not been allowed, or is not allowable, as a deduction in the year for which the notice is given to the Commissioner or in a prior year. Expenditure covered by this paragraph does not have to relate to exploration or prospecting carried out on the area which is the subject of the right or to which the information relates.

Paragraph (c) refers to expenditure of the vendor on housing and welfare incurred in relation to the area which is the subject of the right or to which the information relates that is being allowed as deductions over five years. So much of that expenditure as has not been allowed, and is not allowable, as deductions to the vendor may be taken into account in calculating the amount of the consideration paid by the purchaser for the right or information that may qualify as allowable capital expenditure. The undeducted cost of housing and welfare will not, however, be taken into account if the purchaser of the right does not acquire the housing and welfare, or an interest in it, when he purchases the right - see notes on sub-section (3.).

Paragraph (d) refers to any amount included in the vendor's assessable income under section 122K of the proposed new Division 10 as a result of the sale of property to which the notice relates. Section 122K provides for the inclusion in the assessable income of a taxpayer of so much of the sale price of property that represents a recoupment of deductions allowed to the taxpayer in respect of capital expenditure on that property. The provisions of section 122K are explained later in this memorandum.

Where the amount specified in a notice for the purposes of section 122B exceeds the sum of the amounts referred to in paragraphs (a) to (d), sub-section (2.) provides that the amount specified shall be deemed to be reduced by that excess.

Sub-section (3.) will have effect only in isolated cases where a purchaser of a mining or prospecting right does not acquire any interest in buildings or improvements situated on the area subject to the right or used in connection with the mining operations on that area. In these circumstances the undeducted capital expenditure of the vendor on those improvements will not be taken into account in calculating the part of the cost of the right that may qualify as allowable capital expenditure in the hands of the purchaser of the right. The vendor will retain his entitlements to deductions in respect of that expenditure.

Sub-section (4.) of the proposed section 122B will operate to nullify a notice given under the section in respect of a transaction involving the grant, assignment or surrender of a lease in respect of which the persons giving the notice have made an effective election under section 88B(5.) of the Principal Act.

The effect of section 88B, which is included in Division 4 of the Principal Act and relates to mining leases, is explained in the notes on clause 16. If an election is made under section 88B(5.), the expenditure to which the proposed section 122B would otherwise apply may be deductible under Division 4 as a lease premium. The provisions of sub-section (4.) of section 122B will ensure that the premium does not qualify for deduction under the proposed new Division 10 as well as under Division 4.

Sub-section (5.) provides for a notice under section 122B to be in writing signed by or on behalf of the persons giving the notice. A notice may be lodged with the Commissioner of Taxation not later than two months after the end of the income year of the purchaser in which the transaction occurred. The Commissioner is authorised to extend the time for lodgment of a notice.

Sub-section (6.) provides for the reduction of the sum of the amounts referred to in paragraphs (a), (b) and (c) of sub-section (2.) where the vendor of the right or information has an amount of net declared capital for the purposes of section 122Q of the proposed new Division 10.

The term, 'net declared capital' is defined in the proposed section 122Q. It is, broadly, so much of the sum of the amounts received by a company as moneys paid on shares and specified in declarations made by the company in pursuance of section 77AA of the Principal Act as has not been applied to reduce the deductions allowable to the company for capital expenditure. A result of making declarations under section 77AA is that a company elects to forgo deductions otherwise available to it under Division 10 to the extent of the amount declared so that deductions will be available for that amount to the shareholders of the company.

The purpose of sub-section (6.) is to preserve this principle by restricting the deductions available to a purchaser of a mining or prospecting right or information to so much of the amounts referred to in paragraphs (a), (b) and (c) of sub-section (2.) as exceeds the net declared capital of the vendor. This will ensure that the purchaser is not entitled to greater deductions in relation to expenditure incurred in acquiring the right or information than the vendor would have been entitled to if he had not sold the right or information.

Where the net declared capital relates to expenditure on more than one area, the Commissioner is authorised to determine the proportion of the total net declared capital as may reasonably be attributable to the area the subject of the right or information disposed of. In such a case, only that proportion shall be taken into account for the purposes of the sub-section.

Section 122C: Residual Capital Expenditure.

This section provides the basis for determining the amount of the residual capital expenditure of a taxpayer as at the end of a year of income. The amount so determined as at the end of any income year is available for deduction over the life of the mine or proposed mine to which it relates.

By virtue of the proposed new section 122(3.), where a taxpayer carries on prescribed mining operations on two or more mining properties, this section will apply separately to each property. In such a case there will be an amount of residual capital expenditure for each property.

In broad terms, the residual capital expenditure will be so much of the allowable capital expenditure incurred by a taxpayer up to the end of a year of income as has not been allowed as a deduction in a previous year of income. Expenditure that the taxpayer elects to have deducted in the year in which it is incurred will not, of course, be included in his residual capital expenditure.

Sub-section (1.) of section 122C prescribes the amounts to be taken into account in order to ascertain the residual capital expenditure as at the end of a year of income.

Paragraph (a) of sub-section (1.) provides for the inclusion in residual capital expenditure of the amount of the residual capital expenditure as at the end of the year of income that ended on 30th June, 1967, calculated in accordance with section 122 of the Principal Act, as reduced by -

(i)

any part of that amount that has been allowed or is allowable as a deduction under that section in respect of that year of income; and

(ii)

any part of that amount that is attributable to expenditure on transport facilities of a kind covered by section 123A of the proposed new Division 10AAA.

Paragraph (b) of sub-section (1.) provides for the inclusion in residual capital expenditure of the amount of allowable capital expenditure incurred by a taxpayer after the year of income that ended on 30 June 1967 and before the end of the year of income. Allowable capital expenditure represents expenditure that qualifies for the purposes of the proposed new section 122A. An amount of expenditure incurred on exploration or prospecting that is not allowable as a deduction in the year of income in which it was incurred will also be included in residual capital expenditure by virtue of sub-section (3.) of the proposed new section 122J.

The residual capital expenditure may also include capital expenditure incurred -

(a)

after the year of income that ended on 30th June, 1967 and on or before the date of introduction of the Bill; and

(b)

after the date of introduction of the Bill in accordance with a contract made on or before that date,

even though the expenditure does not qualify as allowable capital expenditure for the purposes of section 122A. Clause 21(1.) of the Bill provides that such expenditure will be treated as allowable capital expenditure if it would have qualified for deduction under the present provisions of Division 10 of the Principal Act, i.e., if it is expenditure on necessary plant or development of the mining property for the purposes of mining operations on the mining property. If the mine-owner does not elect to have this expenditure deducted in the year in which it is incurred, it will be included in the residual capital expenditure.

Paragraphs (c) to (g) of sub-section (1.) provide for amounts falling within the categories specified to be deducted from the sum of the amounts referred to in paragraphs (a) and (b) in ascertaining the residual capital expenditure.

Paragraph (c) requires the sum of the amounts referred to in paragraphs (a) and (b) to be reduced by amounts that have been allowed or are allowable as deductions under the proposed new section 122D in respect of a prior year of income. As explained in the notes on section 122D, that section provides for an annual deduction of the residual capital expenditure over the life of the mine.

Paragraph (d) excludes from the residual capital expenditure amounts allowed or allowable under the proposed new section 122E which provides one of the alternative bases of deduction for allowable capital expenditure. Under that section a mine-owner may elect to have allowable capital expenditure deducted in the year in which it is incurred.

Where an election is made for section 122E to apply to an amount of capital expenditure, that amount is excluded from residual capital expenditure to prevent a double deduction in respect of the same expenditure.

Paragraph (e) excludes from residual capital expenditure amounts in respect of which the taxpayer has elected to have the proposed new section 122F applied. Under section 122F a taxpayer may elect to deduct expenditure on housing and welfare (as defined) over five years. In such a case, the amount to which section 122F applies is excluded from the residual capital expenditure to prevent a double deduction for the one amount of expenditure.

Paragraph (f) provides for the exclusion from residual capital expenditure of the undeducted amount included therein in respect of property, including a mining or prospecting right, which has been disposed of, lost or destroyed or the use of which for prescribed purposes has been terminated.

"Prescribed purposes" is a defined term which means, in effect, purposes of mining or exploration which permit the expenditure to qualify for deduction under the present Division 10 of the Principal Act or the proposed new Division 10. If property ceases to be used for such purposes and is used for purposes outside the scope of the Division, no further deductions are permitted under Division 10 in respect of the expenditure on the property. Provision is made in the proposed new section 122K for balancing adjustments to be made in respect of property to which this paragraph applies.

Paragraph (g) provides for the exclusion from residual capital expenditure of expenditure not covered by paragraph (f) which is required to be taken into account in calculating the amount to be included in the allowable capital expenditure of a purchaser of a mining or prospecting right or mining or prospecting information under the proposed new section 122B.

As explained in the notes on section 122B, that section enables a purchaser of such a right or information to obtain the entitlement to deductions which would otherwise have been available to the vendor of the right or information. To the extent that those deductions are in respect of "property", paragraph (f) of this sub-section will operate to prevent the vendor from also receiving deductions. Paragraph (g) will apply to expenditure of the vendor of a right or information that is not expenditure on, or in relation to, "property", e.g., expenditure on exploration or prospecting which has resulted in the gaining of information as to the presence or absence of particular minerals in certain areas.

Sub-section (2.) applies where expenditure on property has been excluded from residual capital expenditure, or in the case of housing and welfare, has been excluded from the expenditure that is deductible over five years under the proposed new section 122F, because the property has ceased to be used for mining purposes. In the event of such property commencing to be used again for purposes for which allowable capital expenditure may be incurred, the sub-section provides that an amount determined by the Commissioner shall be treated as having been incurred by the taxpayer in the year of income in which the property again commences to be so used. The amount determined by the Commissioner will be included in the residual capital expenditure of the relevant year, or, in the case of housing and welfare, will be eligible for deduction over five years if the taxpayer elects to have the deductions allowed on that basis.

Sub-section (3.) provides for an adjustment to residual capital expenditure in certain circumstances where a right to mine has been sold, transferred or assigned by a bona fide prospector. The sub-section is complementary to section 23(p) of the Principal Act and the proposed new section 122J.

Section 122J authorises a deduction for the cost of exploration or prospecting on mining tenements in the year of the expenditure. The deduction under that section is limited to the net income from a mining business derived by the taxpayer during that year. If the expenditure exceeds that net income, the excess is deemed to be allowable capital expenditure of the first subsequent year in which the taxpayer is carrying on prescribed mining operations. It is then taken into account in ascertaining the amount of the residual capital expenditure of that subsequent year.

As explained in the notes on clause 5 of the Bill, section 23(p) exempts income derived by a bona fide prospector from the sale of rights to mine in a particular area for a prescribed metal or mineral. The amount of income otherwise exempted by section 23(p) is reduced by the amount of exploration or prospecting expenditure incurred on that area and which has been allowed, or is allowable, as a deduction to the taxpayer under either the proposed new section 122J or 122D.

However, that reduction of the income exempt under section 23(p) does not take into account the part of the exploration or prospecting expenditure which has been included in residual capital expenditure and which has not been allowed, or is not allowable, as a deduction to the taxpayer up to the time of the sale. The purpose of sub-section (3.) is to exclude from residual capital expenditure the undeducted exploration or prospecting expenditure included therein which relates to the area disposed of for a consideration which has been exempted from tax under section 23(p). If, however, the amount of income exempted under section 23(p) is less than the undeducted exploration or prospecting expenditure, only an amount equal to the amount of exempt income is excluded from the residual capital expenditure.

Section 122D: Deduction of Expenditure

Section 122D is the operative section which authorises deductions for residual capital expenditure over the life of the mine.

Sub-section (1.) provides that where a taxpayer has an amount of residual capital expenditure as at the end of a year of income, a deduction is allowable in accordance with section 122D.

Sub-section (2.) provides that the deduction for any year is ascertained by dividing the amount of the residual capital expenditure as at the end of the year by the lesser of the number of years in the estimated life of the mine as at the end of the year of income or twenty-five. This continues the principle contained in the present law. The period of twenty-five years has been adopted to enable mine-owners to obtain deductions for residual capital expenditure based on a reasonable period.

Where a taxpayer has more than one mine on a mining property, the sub-section provides that the calculation of the deduction allowable for the residual capital expenditure is to be made on the basis of the estimated life of the mine with the longer or longest estimated life as the case may be.

Provision is also made to meet the situation where a taxpayer has undertaken preparatory work such as clearing the mine site and installing light and power but has not commenced the actual extractive mining operations. In such a case, the deduction is determine by relating the expenditure to the estimated life of the proposed mine.

Reference has already been made in the notes on the proposed new sections 122(3.) and 122A, to the situation where a taxpayer carries on, or proposes to carry on, prescribed mining operations on two or more mining properties. In these circumstances, a separate amount of residual capital expenditure is to be ascertained for each property. The deductions allowable under section 122D will, therefore, be determined for each property on the basis of the estimated life of the mine on that property.

Sub-section (3.) provides that, unless the taxpayer otherwise elects, the deduction allowable under section 122D in a year of income is limited to the amount of the assessable income which remains after allowing all other deductions other than a deduction under the proposed new section 122J in respect of exploration or prospecting expenditure. This provision is included so that a taxpayer will not be deprived of an effective deduction for allowable capital expenditure through the operation of section 80 of the Principal Act. This could occur where the taxpayer has insufficient income in the seven years subsequent to the year in which the expenditure was incurred to recoup the full amount of that expenditure.

Provision is also made for the case where a taxpayer carries on prescribed mining operations on more than one mining property. In such a case the total deductions on all properties is limited to what may be termed the net income after the allowance of other deductions. If the total deductions allowable under section 122D exceed that net income, the excess is applied to proportionately reduce the deductions in respect of each property.

An amount excluded from the deduction allowable for a particular year under this sub-section remains in residual capital expenditure to be deducted in future years.

Sub-section (4.) gives a taxpayer the right to elect that sub-section (3.) shall not apply. In that event, an excess of deductions over assessable income will be carried forward under section 80 of the Principal Act for deduction from the income of succeeding years. Section 80 provides, broadly, that losses incurred in any of the seven years preceding the year of income shall be allowable deductions. For this purpose, a loss is, in broad terms, the excess of allowable deductions over the assessable income and the net exempt income derived in the year of income.

Section 122E: Election to deduct expenditure in the year in which incurred

Section 122E re-enacts, in principle, provisions which are contained in section 122A of the Principal Act. Under this section, a person who has incurred allowable capital expenditure may elect to have a deduction for all or part of that expenditure in the year in which it is incurred in lieu of having deductions spread over the estimated life of a mine.

Sub-section (1.) provides that a taxpayer may elect that section 122E shall apply in respect of allowable capital expenditure, other than expenditure on housing and welfare or on the purchase of a mining or prospecting right or mining or prospecting information.

Housing and welfare expenditure may, at the option of the taxpayer, be deducted over five years or over the life of the mine. The cost of acquiring a mining or prospecting right or mining or prospecting information is only deductible over the life of the mine.

Subject to the restrictions mentioned above, the election under section 122E may be exercised in relation to expenditure on any unit or units of plant or the whole or any part of other allowable capital expenditure. The election may not be exercised in respect of part only of the allowable capital expenditure on any one unit of plant. However, it is open to a taxpayer to elect in respect of capital expenditure on one or more complete units of plant leaving expenditure on other units of plant to be deducted over the life of the mine or by way of normal depreciation allowances.

Sub-section (2.) formally provides that expenditure for which an election has been lodged under section 122E shall be an allowable deduction from the assessable income of the year of income in which the expenditure was incurred.

Section 122F: Election to deduct expenditure in respect of housing and welfare over five years.

Housing and welfare is defined in the proposed section 122 and has been explained in the notes on that section. Broadly, it covers accommodation and welfare facilities provided at, or at a place adjacent to, the site of extractive mining operations for employees of the taxpayer working on that site, and for dependants of those employees. Where a taxpayer incurs allowable capital expenditure on housing and welfare he has the choice of having the expenditure deducted over the life of the mine or of electing that section 122F apply to allow deductions over a period of five years.

Sub-section (1.) provides that where a taxpayer has incurred allowable capital expenditure on housing and welfare during an income year in relation to a mining property, he may elect that section 122F apply to the whole of that expenditure. A taxpayer is not permitted to elect that this section apply in respect of part only of expenditure on housing and welfare incurred in an income year for a particular mining property. However, where he has two or more mining properties, he may elect to have section 122F applied to the expenditure in respect of only one, or some, of those properties.

Sub-section (2.) provides that where an election is made, one-fifth of the expenditure on housing and welfare is an allowable deduction from the assessable income of the year in which the expenditure is incurred and from the assessable income of the next four succeeding years of income.

Sub-section (3.) operates to terminate deductions under section 122F where property, in relation to which an election has been made under sub-section (1.), is disposed of, lost or destroyed, or ceases to be used for the purposes of housing and welfare.

Where sub-section (3.) applies, no deduction will be allowable under section 122F in respect of expenditure on such property for the year in which the disposal, loss or destruction, or cessation of use, occurs or for any subsequent year. Any unrecouped expenditure on the property will, however, be taken into account in ascertaining the balancing adjustment under the proposed new section 122K.

The operation of sub-section (3.) is subject to the proposed new section 122C(2.) which provides, in effect, that, where a taxpayer ceases to use property as housing or welfare and subsequently uses it again as such, an amount determined by the Commissioner in respect of the property may qualify for deduction as residual capital expenditure or, if the taxpayer so elects, for deduction under section 122F.

Section 122G: Deductions of Appropriations

Section 122G permits a taxpayer to elect to have a deduction allowed in respect of an amount of income appropriated for allowable capital expenditure which is not expended during the year of income in respect of which the appropriation is made. For the purposes of this section, allowable capital expenditure does not include expenditure on housing and welfare or the cost of acquiring a mining or prospecting right or mining or prospecting information. The section re-enacts, in principle, the provisions of section 122B of the Principal Act.

Sub-section (1.) provides that where a person who is carrying on prescribed mining operations appropriates income to be expended as allowable capital expenditure, he may elect to have section 122G applied to so much of the amount appropriated as is not expended in the year in which the appropriated income is derived.

Sub-section (2.) permits a taxpayer to make an appropriation of income during the year in which the income is derived or within two months after the end of that year, or within such further time as the Commissioner allows. An appropriation may, therefore, be made after the end of the income year in which the income appropriated is derived, e.g., when the accounts for the year are being completed.

Sub-section (3.) is the operative provision. It authorises a deduction of the unexpended amount of an appropriation. The deduction is available against the assessable income of the income year in which the appropriated income was derived. The deduction is limited to so much of the amount of the appropriated income as the Commissioner is satisfied will be, or is likely to be, expended as allowable capital expenditure by the end of the income year next succeeding the year of income in respect of which the appropriation is made. This limitation is necessary as a safeguard against excessive appropriations.

Sub-section (4.) provides that where a deduction has been allowed in a year of income for an appropriation of income, the assessable income of the next succeeding year shall include an amount equal to that deduction. The amount so included in assessable income will, in effect, be offset by the deduction for allowable capital expenditure actually incurred in that succeeding year.

This procedure will achieve the same result as the procedure now prescribed in section 122B of the Principal Act. At present, a deduction is allowable for an appropriation in the year in which the appropriated income is derived. A deduction is not allowable in the succeeding year for capital expenditure incurred out of the appropriation and any amount of the appropriation not expended by the end of that year is included in the assessable income for that year.

Sub-section (5.) is a drafting measure the need for which arises because of the effect of an election under section 122G where section 23A of the Principal Act applies to a mining enterprise.

The operation of section 23A is explained in the notes on clause 6 of the Bill. Broadly, that section exempts 20 per cent of the net income derived by a taxpayer from mining for prescribed metals or minerals in Australia or in the Territory of Papua and New Guinea. In determining the net income for the purposes of this section, there is deducted from the relevant assessable mining income all allowable deductions which relate to that income and so much of any other allowable deductions which may appropriately be related to that income. These deductions include deductions allowable under the proposed new Division 10 which relate to the earning of income to which section 23A applies.

In the absence of sub-section (5.), a deduction for an appropriation of income could reduce the income subject to an exemption under section 23A for the year of income in respect of which the appropriation is made. Allowable capital expenditure incurred out of the appropriation would be deductible in the next succeeding income year. This deduction could also reduce the income subject to an exemption under section 23A for the year of income succeeding the year in which the appropriation has been allowed as a deduction. In effect, the amount of income qualifying for exemption under section 23A would be reduced twice by deductions for the one amount of expenditure.

The purpose of sub-section (5.) is to avoid such a result. This will be achieved by treating income included in the assessable income of the year following an appropriation as income to which section 23A applies to the extent that the deduction for the appropriation has been taken into account in calculating the exempt income in the year the deduction was allowed. As a corollary, the Commissioner will be authorised to determine the deductions allowable in the year in which the appropriation is included in the assessable income which may reasonably be taken into account for the purpose of calculating the amount of income exempt in that year under section 23A.

The taxpayer will, in these circumstances, be placed, as far as is practicable, in the same position as he would have been in if he had not elected to have a deduction for appropriated income.

Sub-section (6.) provides, in effect, that a deduction is not allowable under section 122G in respect of an appropriation of income to be expended on housing and welfare or in the acquisition of a mining or prospecting right or mining or prospecting information. This is consistent with the principle followed in the proposed new section 122E which excludes these classes of expenditure from the expenditures which may be deducted in the year in which they are incurred.

Section 122H: Election that Division Not to Apply to Plant

Section 122H re-enacts, in substance, the provisions of section 123 of the Principal Act which permit a mine-owner to elect to have the normal depreciation provisions of that Act applied to plant instead of having the cost deducted under the mining provisions of Division 10 of that Act.

Sub-section (1.) formally provides the mine-owner with the right to elect that section 122H shall apply to expenditure on a unit of plant referred to in the election. If such an election is made, the plant will be subject to normal depreciation allowances. If the expenditure is incurred over more than one income year, the election is to have effect for the total amount of that expenditure.

Sub-section (2.) is a drafting measure which will require an election for the purposes of section 122H to be made in respect of the first year in which capital expenditure is incurred by the mine-owner in acquiring or constructing plant for mining purposes.

Section 122J: Exploration and Prospecting Expenditure

This section substantially re-enacts the provisions of section 123AA of the Principal Act which authorises a deduction for exploration or prospecting expenditure (other than for gold or petroleum).

Sub-section (1.) provides that expenditure incurred by a taxpayer on exploration or prospecting on any mining tenements in Australia or the Territory of Papua and New Guinea for minerals obtainable by prescribed mining operations shall be an allowable deduction. By virtue of the definition of prescribed mining operations in the proposed new section 122, section 122J will not apply to exploration or prospecting expenditure incurred in searching for minerals, such as gold, the income from which is exempt. Nor will the section apply to such expenditure incurred in searching for petroleum. Special deductions are provided for the costs of petroleum exploration in Division 10AA of the Principal Act.

Sub-section (2.) limits the deduction under section 122J to a taxpayer who is carrying on a mining business (other than a business of mining for petroleum). It also limits the deduction allowable under the section to so much of the taxpayer's assessable income from that business and from activities associated with that business as remains after deducting all other deductions relating to that income including deductions allowable under other provisions of the proposed new Division 10.

Sub-section (3.) applies where the exploration or prospecting expenditure incurred by a taxpayer in an income year exceeds the deduction allowable in respect of that expenditure under sub-section (2.). This excess is deemed to be allowable capital expenditure incurred by the taxpayer in the first subsequent year in which he carries on prescribed mining operations. The excess is then deductible over the life of the mine in accordance with the proposed new section 122D.

Where a taxpayer does not carry on prescribed mining operations for some years after incurring expenditure to which this section relates, any excess arising under this section can be carried forward indefinitely until he commences such operations.

Alternatively, the unrecouped exploration or prospecting expenditure (other than expenditure on plant) may be taken into account for the purposes of the proposed new section 122B if the taxpayer sells a mining or prospecting right or mining or prospecting information. In these circumstances the taxpayer and the purchaser of the right or information may give a notice to the Commissioner specifying that an amount of the consideration for the sale, up to the amount of the unrecouped exploration or prospecting expenditure, is to be treated as allowable capital expenditure of the purchaser. As explained in the notes on the proposed new section 122B, the practical effect of the notice is to transfer to the purchaser the entitlement of the taxpayer to have the expenditure deducted over the life of the mine.

Sub-section (4.) covers the case where the whole or part of an excess amount referred to in sub-section (3.) is to be taken into account under the proposed new section 122B to determine the amount to be included in the allowable capital expenditure of a purchaser of a mining or prospecting right or information. In such a case, it is necessary to ensure that neither the vendor nor any subsequent purchaser of a mining or prospecting right or information from the vendor becomes entitled to a deduction for that same amount.

This is done by specifically providing -

(a)

that sub-section (3.) shall not operate to deem so much of that excess amount as has been taken into account under section 122B to be allowable capital expenditure of the vendor of any year of income; and

(b)

that so much of the excess amount as has been taken into account for the purposes of section 122B shall not be available to any subsequent purchaser of a mining or prospecting right or information from the vendor.

Sub-section (5.) is a drafting measure which is complementary to certain adjustments made under section 23(p) of the Principal Act and the proposed new section 122C(3.) in respect of exploration or prospecting expenditure to which section 122J applies. The provisions of the sub-section are necessary to meet special circumstances that may arise in isolated cases.

As explained in the notes on clause 5 of the Bill, section 23(p) exempts income derived by a bona fide prospector from the sale of rights to mine in a particular area for a prescribed metal or mineral. The amount of income otherwise exempt under section 23(p) is reduced by the amount of exploration and prospecting expenditure incurred on that area which has been allowed or is allowable to the taxpayer as a deduction under either the proposed new section 122J or 122D.

Where exploration or prospecting expenditure has been included in the residual capital expenditure of the vendor of the right, but has not been allowed as a deduction up to the date of the sale, the proposed new section 122C(3.) will require an appropriate adjustment to the residual capital expenditure. This is achieved by reducing the residual capital expenditure by the lesser of the undeducted exploration or prospecting expenditure incurred on the area which is the subject of the right sold and the amount of net exempt income derived on the sale of the right.

In some circumstances, however, the exploration or prospecting expenditure will not have been allowed, or be allowable, as a deduction under section 122J and will not be included in the residual capital expenditure of the vendor.

The purpose of sub-section (5.) is, in the circumstances described, to reduce the vendor's entitlements to future deductions for an amount of exploration or prospecting expenditure which has not been included in residual capital expenditure. The amount available for future deductions will be reduced by the amount of the expenditure itself or the amount of net exempt income derived on the sale of the right, whichever is the less. In the event that the residual capital expenditure of the vendor is required, in consequence of the sale of the right, also to be reduced by the operation of section 122C(3.), the amount of the reduction under that section is to be made from the exempt income before the further reduction required by sub-section (5.) of section 122J is made.

Sub-section (6.) defines "exploration or prospecting" for the purposes of the section. The term includes any one or more of the following:

(i)

geological mapping, geophysical surveys, systematic search for area containing minerals and search by drilling or other means within those areas; and

(ii)

search for ore within or in the vicinity of an ore-body by drives, shafts, cross-cuts, winzes, rises and drilling.

The definition does not extend to normal mining operations which are directed towards the extraction of minerals as opposed to the discovery of mineral deposits.

Section 122K: Disposal, Loss, Destruction or Termination of Use of Property

Section 122K provides for balancing charges to be made when property in respect of which expenditure has been or is deductible under the special mining provisions is disposed of, lost, or destroyed, or its use for mining purposes has been terminated. The section re-enacts, in substance, the provisions of section 124 of the Principal Act. If a mine-owner has elected under section 122H to have the depreciation provisions of the Principal Act applied in respect of a unit of plant, any balancing adjustment required on a disposal, loss or destruction of the plant will be made under section 59 of that Act instead of under section 122K.

Sub-section (1.) formally states that the section applies where deductions have been allowed or are allowable under the proposed new Division 10, or under a previous law relating to the taxation of income from mining, in respect of capital expenditure on property that has been disposed of, lost or destroyed or that has ceased to be used for mining purposes.

Sub-section (2.) applies where the sum of the deductions allowed or allowable in respect of expenditure on property and the consideration receivable on the disposal loss or destruction of the property, or the value of the property at the date it ceased to be used for mining purposes, exceeds the total capital expenditure of the taxpayer on that property. In such a case, so much of the amount of the excess as does not exceed the deductions allowed, or allowable, is included in the taxpayer's assessable income.

Sub-section (3.) applies in the converse case where the total capital expenditure on property exceeds the sum of the deductions allowed or allowable in respect of expenditure on that property and the consideration receivable on the disposal, loss or destruction of the property, or the value of the property at the date it ceased to be used for mining purposes. In this event, a deduction is allowable for the amount of the excess.

Sub-section (4.) contains definitions of terms used in section 122K.

"Expenditure": This term, as used in section 122K, does not include expenditure on coal mining operations that was incurred prior to the year of income that commenced on 1 July 1951. This was the income year in which Division 10 of the Principal Act first applied to the coal mining industry. Accordingly, expenditure on property used in coal mining operations that was incurred prior to that income year would not have been deductible under the provisions of Division 10 of the Principal Act. Such expenditure is not, therefore, taken into account for the purposes of balancing adjustments under section 122K where the property on which it was incurred is disposed of, lost or destroyed, or it ceases to be used in mining operations.

"The consideration receivable in respect of the disposal, loss or destruction": This phrase means, in effect, either the net sale price where property is sold or the insurance recoverable where property is destroyed. Any amount receivable on the grant, assignment or surrender of a lease which is assessable income under the lease provisions of the Principal Act is, however, to be excluded from any consideration receivable taken into account for the purposes of the balancing adjustments under section 122K.

Section 122L: Transactions Between Persons not at Arm's Length

This section is designed as a safeguard in relation to sales of property (other than a mining or prospecting right) where the Commissioner is satisfied that the purchaser and the vendor of property were not dealing with each other at arm's length. This may occur, for example, in a case where property is sold by a parent company to a subsidiary company or an associated company.

In these circumstances, the Commissioner will be authorised to adopt an amount that, in his opinion, is the value of the property at the date of the transaction, and this amount may be greater or less than the purchase price. The value so adopted will have effect in the assessments of both the vendor and the purchaser.

The section will apply to the purchase of property only where the cost of the property qualified as allowable capital expenditure in the hands of the vendor or qualifies as allowable capital expenditure in the hands of the purchaser.

A taxpayer who is dissatisfied with a decision of the Commissioner under this section will have the usual rights of objection and reference to a Taxation Board of Review.

The section does not apply to the acquisition of a mining or prospecting right as the proposed new section 122B provides a special basis for determining the deductions available to the purchaser of such a right or information.

Section 122M: Elections

Section 122M provides that an election under any of the provisions of the proposed new Division 10 must be in writing signed by or on behalf of the taxpayer.

The section also specifies the times within which each election shall be lodged with the Commissioner. The specified times are -

(i)

in the case of an election under section 122E or section 122F - on or before the last day for the furnishing of the return of income of the year of income during which the expenditure was incurred;

(ii)

in the case of an election under section 122G - on or before the last day for the furnishing of the return of income of the year of income in which the income appropriated was derived; and

(iii)

in the case of an election under section 122D or section 122H - on or before the last day for the furnishing of the return of income of the year of income specified in the election.

An extended time for lodgment of any of the elections covered by section 122M may be granted by the Commissioner of Taxation.

Section 122N: Deductions Not Allowable under Other Provisions.

The purpose of this section is to prevent double deductions in respect of an amount of expenditure which qualifies for deduction under the proposed new Division 10. It corresponds with section 124C of the present Division 10.

Sub-section (1.) provides that where the whole or part of an amount of capital expenditure is deductible under the proposed new Division 10, or under a previous law relating to the taxation of income from mining, that expenditure shall not be deductible and shall not be taken into account in ascertaining the amount of an allowable deduction under any other provision of the Principal Act.

Sub-section (2.) modifies the effect of sub-section (1.) in the case of a unit of plant which has ceased to be used for mining purposes but is used for other purposes that bring it within the scope of the depreciation provisions of the Principal Act.

For the purposes of the application of the depreciation provisions in such a case the unit is deemed to have been acquired by the taxpayer at a cost equal to the amount that, in the opinion of the Commissioner, was the value of the unit at the time its changed use commenced.

A taxpayer will have the usual rights of objection and appeal against any valuation adopted by the Commissioner.

Sub-section (3.) is a drafting provision which is complementary to sub-section (1.). It provides that any amount that would have been allowed or allowable as a deduction under the proposed new Division 10, but for the operation of the proposed section 122D(3.) or 122J(2.), shall, for the purposes of sub-section (1.), be deemed to have been allowed or allowable as a deduction. The two provisions cited limit the deductions allowable to an amount of income of the relevant year. However, in both cases, the amounts not allowed as a result of this limitation are available for deduction in subsequent years. It is, therefore, necessary to ensure that these amounts are not deductible under other provisions of the Principal Act.

Section 122P: Deductions Where Exempt Income Derived

This section sets out the deductions that are allowable from the sale of pyrites where that mineral is obtained in the course of mining operations conducted principally for the purpose of producing gold, or gold and copper. The section is complementary to section 23(o) of the Principal Act and will re-enact, with some drafting changes, the provisions of section 124D of that Act.

Section 23(o) exempts from tax income derived from the working of a mining property principally for the purpose of obtaining gold, or gold and copper. In the latter case, the exemption applies only where the value of the gold is not less than 40 per cent of the value of the total output of the mine, excluding pyrites. Income derived from the production, treatment or sale of pyrites that is obtained in the course of mining for gold, or gold and copper, is taxable.

The purpose of section 122P is to exclude from the deductions allowable in relation to the income from pyrites, expenses that would have been incurred by the mine-owner even if the pyrites had not been treated and sold.

Paragraph (a) provides, in effect, that capital expenditure incurred in connection with a mining property producing both exempt income from the mining of gold or gold and copper and assessable income from the mining of pyrites shall not be deductible under the proposed new Division 10 unless two conditions are satisfied. Those two conditions are that -

(a)

the expenditure be incurred for the recovery of pyrites from ore mined on the property or for the transport on that property of ore mined on the property; and

(b)

the expenditure be expenditure which would not have been incurred if operations to produce assessable income from pyrites had not been carried on.

As is the case under the present law, expenditure on housing and welfare incurred in connection with a mining property producing gold and pyrites will not be deductible under the proposed new Division 10 even though the facilities may be provided to some extent for employees engaged on the pyrites operations.

Paragraph (b) specifies further limitations on the deductions allowable in respect of other types of expenditure pertaining to the production of gold and pyrites. It provides that the following deductions are not allowable from the assessable income derived from the treatment and sale of pyrites -

(i)

revenue losses and outgoings relating to the working of the property which would have been incurred if the income from pyrites had not been derived;

(ii)

depreciation of plant used in connection with the working of the property, other than a unit of plant used in the recovery of pyrites from ore mined on that property or for the transport on the property of ore mined on the property, which is a unit of plant which would not have been required if the income from pyrites had not been derived;

(iii)

an amount appropriated for capital expenditure for purposes that are, to any extent, related to gaining or producing the exempt income;

(iv)

so much of a loss on the disposal of mining assets otherwise allowable as a deduction under the proposed new section 122K(3.) as, in the opinion of the Commissioner, should be excluded from allowable deductions; and

(v)

a premium paid by the taxpayer in relation to a lease of the mining property on which the gold and pyrites are produced.

Section 122Q: Reduction of Allowable Deductions where Declaration Lodged under Section 77AA.

Section 122Q re-enacts provisions at present contained in section 124DA of the Principal Act.

As explained in the notes on clause 9 of the Bill, a mining or prospecting company may, by lodging an appropriate declaration under section 77AA of the Principal Act, entitle its resident shareholders to deductions for moneys subscribed as paid-up capital on shares in the company.

Where a company elects to make such a declaration, the deductions to which it would otherwise be entitled for capital expenditure under the special mining provisions are correspondingly reduced. Section 122Q authorises these reductions and provides a basis on which to calculate them.

Sub-section (1.) contains definitions of several terms used in the section.

"Mining company": Because of the interaction between the two sections, this term is given the same meaning as in section 77AA of the Principal Act. It means a company that carries on, or proposes to carry on, as its principal business, mining or prospecting in Australia for prescribed minerals. Prescribed minerals covers all minerals obtained by mining to which the proposed new Division 10 applies, i.e., except in the case of petroleum, where the mining activities are carried on to produce assessable income.

"Net declared capital": This is the amount which, from time to time, remains to be applied in reduction of the deductions of a company that has lodged a declaration under section 77AA.

The first step in calculating the net declared capital is to ascertain the net declared capital as at the end of the year of income that ended on 30th June 1967. To this amount is added all amounts specified by a company in declarations made under section 77AA in years of income subsequent to that year of income, together with amounts required to be included in the net declared capital by the operation of sub-section (6.) of section 122Q.

From the total of all these amounts there must be deducted the amounts, if any, by which the company's deductions have been reduced in a previous year, except a year prior to the year of income that ended on 30th June, 1967. (Reductions in respect of years prior to income year 1966/67 will be made under the existing provisions of section 124DA of the Principal Act). In most cases the net result so obtained will be the net declared capital as at the end of the relevant year of income.

There will, however, be isolated cases in which a further step may be necessary. This will occur where the Commissioner of Taxation is not satisfied that the amounts specified in declarations lodged under section 77AA will be expended on prospecting or mining in accordance with the declarations. In these cases, the deductions available to shareholders under section 77AA will be reduced and there will be a corresponding restoration of the deductions available to the company. This restoration is effected under paragraph (b) of the definition of "net declared capital".

"Prescribed deduction": The definition of this term specifies the type of deduction that may be reduced consequent on a declaration made by a mining company under section 77AA. The deductions specified are, broadly -

(i)

deductions available under the proposed new Division 10 for allowable capital expenditure incurred by a mining company in carrying on mining operations; and

(ii)

depreciation allowances on plant in respect of which the mining company has elected to be allowed deductions for depreciation in lieu of deductions available under the proposed new Division 10 for the cost of the plant.

Sub-section (2.) states the circumstances in which the prescribed deductions are to be reduced and quantifies the amount of the reductions. The sub-section will apply only where the three tests set out in paragraphs (a), (b) and (c) of the sub-section are satisfied. These tests are -

(a)

that the mining company concerned shall have lodged a declaration or declarations under section 77AA;

(b)

that, in relation to the company, there is at the end of the year of income, an amount of net declared capital; and

(c)

that the company is (or would be but for section 122Q) entitled for the income year to prescribed deductions.

If all of these tests are satisfied, the Commissioner is required to apply the whole, or a part, of the net declared capital in reduction of the prescribed deductions in the following manner -

-

where the total prescribed deductions exceeds the net declared capital, paragraph (d) of sub-section (2.) requires that the whole of the net declared capital is to be applied in reduction of the prescribed deductions;

-

where the total of prescribed deductions does not exceed the net declared capital, paragraph (e) of the sub-section requires the application of so much of the net declared capital as will reduce the prescribed deductions to NIL.

In a case where paragraph (d) has applied, there will be a full recoupment against the company's deductions of the deductions allowed to shareholders. Where paragraph (e) has applied, the balance, if any, of the net declared capital not applied in reduction of prescribed deductions for the relevant income year will remain available for set-off against prescribed deductions of subsequent years.

Sub-section (3.) will apply only in isolated cases. Its effect will be to increase a company's entitlement to deductions which have been affected by the operation of section 122Q where the deductions available to shareholders under section 77AA have been reduced.

This situation would occur where the Commissioner is not satisfied that the amounts specified by a company in a declaration have been, or will be, spent in accordance with the declaration and he has notified the company to that effect in pursuance of section 77AA(5.).

A similar situation would occur where the Commissioner is satisfied that any part of the amounts specified by a company in a declaration were paid by a person in pursuance of an arrangement made in connection with -

(i)

the purchase by the company or by another company of a mining or prospecting right or mining or prospecting information; or

(ii)

the purchase of shares in a company holding such a right or information,

and he has notified the company to that effect in pursuance of section 77AA(8A.).

In either of these circumstances, the deductions to which shareholders would otherwise be entitled under section 77AA will be reduced. There will then be a consequential increase in the deductions available to the company and the purpose of sub-section (3.) is to prescribe a basis for determining the amount of that increase.

Under paragraph (a) of sub-section (3.), the Commissioner is to ascertain the sum of the amounts (if any) by which the prescribed deductions of a company are to be, or have been, reduced in consequence of declarations made by the company under section 77AA.

Paragraph (b) applies where the amount in respect of which the Commissioner has given notice under section 77AA(5.) or section 77AA(8A.) does not exceed the amount determined under paragraph (a), that is, the amount by which the prescribed deductions are to be, or have been, reduced. In such a case, the former amount shall be an allowable deduction in the year in which the notice was given.

This restores to the company an entitlement to deductions for an amount which corresponds with the reduction of the deductions available to its shareholders under section 77AA in consequence of a notice given by the Commissioner under either of the provisions of that section mentioned above.

Paragraph (c) is complementary to paragraph (b) and applies where the amount in respect of which the Commissioner has given a notice under section 77AA(5.) or 77AA(8A.) exceeds the amount ascertained under paragraph (a). In these circumstances the company will be entitled to a deduction for the latter amount.

The effect of paragraph (c) is to authorise a deduction equal to the amounts which the company has lost, or will lose in the current year, by way of reduction of prescribed deductions. To the extent that this deduction falls short of the amount in respect of which the Commissioner has given a notice under section 77AA(5.) or section 77AA(8A.), sub-paragraph (ii) of paragraph (c) authorises a reduction in the company's net declared capital. The paragraph thus ensures, as far as practicable, that reductions in the shareholder's deductions are counter-balanced by increases in the prescribed deductions available to the company.

Paragraph (d) applies where paragraph (a) is not applicable, that is, where no reduction of prescribed deductions has been made in prior years or is to be made in the current year. In these circumstances, there is no deduction that needs to be restored to the company. However, the paragraph ensures that the same overall result is achieved by reducing the net declared capital as at the end of any subsequent year of income by the amount in respect of which the Commissioner has given a notice under section 77AA(5.) or section 77AA(8A.).

Sub-sections (4.), (5.) and (6.) of section 122Q may apply where a mining company has been allowed, or is entitled to, a deduction under the proposed new section 122G for an amount of income appropriated for allowable capital expenditure. The deduction is allowable against the income of the year in which the company derived the appropriated income. However, the full amount appropriated is included in the income of the next succeeding year.

In these circumstances the deduction allowed in the first of the two years is, in effect, reversed in the second year. Should the prescribed deductions for the first year have been reduced in accordance with sub-section (2.) of section 122Q, there will be a corresponding need to adjust the amount to be included in the assessable income of the second year. Sub-sections (4.), (5.) and (6.) are designed to achieve this result.

Sub-section (4.) provides that, where an amount in respect of an appropriation of income is to be included in assessable income, the amount that would otherwise be so included is to be reduced by the amount in respect of which sub-section (2.) has applied to reduce the deduction under section 122G.

Sub-section (5.) is a drafting provision to facilitate the operation of sub-section (4.). It will enable the Commissioner to determine the extent to which deductions under section 122G have been reduced in consequence of the operation of sub-section (2.) where the net declared capital has been applied against those deductions and other deductions allowable to the company for capital expenditure incurred in respect of its mining operations. In effect the net declared capital is set off against other allowable deductions before any deductions for appropriations are reduced.

Sub-section (6.) enables the "net declared capital" of a company to which sub-section (4.) applies to be determined after regard has been had to the operation of that sub-section. This result is achieved by the operation of sub-section (6.) in conjunction with the definition of net declared capital that has already been explained. In effect, the net declared capital is restored to the amount that it would have been for the year of income if the deduction allowable in the preceding year for an appropriation of income had not been reduced by an application of the net declared capital against that appropriation under sub-section (2.). The net declared capital, as increased by sub-section (6.), will then be applied to reduce the deductions available for the year of income in which it is so increased.

Sub-section (7.) is a machinery provision to ensure that deductions available to a mining company for its allowable capital expenditure or for its exploration or prospecting expenditure, or by way of depreciation allowances, are not disturbed beyond the extent necessary to give effect to section 122Q.

This result is achieved by deeming those deductions to have been allowed in full even though they have been reduced consequent upon deductions being made available to shareholders in lieu of the company. As a result, the depreciated value of plant and the residual capital expenditure remain the same as if section 122Q had not operated to reduce the deductions.

Sub-section (8.) is a drafting measure the purpose of which is to ensure that section 122Q will continue to have the same practical effects in relation to a company that has lodged declarations under section 77AA as section 124DA of the Principal Act would have had if the amendments proposed by clause 17 to Division 10 of the Principal Act had not been enacted.

Section 122R: Change in Interests in Property

This section is designed to apply where there are transfers of interests in mining assets in respect of which deductions have been allowed under the proposed new Division 10, including cases where the transfers are associated with the formation, variation or dissolution of a partnership.

By section 122R, changes in interests in mining assets will be treated as disposals by the persons who owned the assets prior to the change to persons owning the assets after the change. The section will apply to a change in interests or ownership, so long as one of the parties who owned the assets before the change is one of the persons owning the assets after the change.

If an amount is specified by the parties as the value of the assets in a written agreement relating to the transfer of interests in the assets, that amount is to be regarded as the consideration receivable for the assets. However, in the event of no amount being specified in such an agreement, the Commissioner is authorised to determine an amount to be taken into account as consideration receivable for the assets.

An amount to be treated as the consideration receivable on the disposal of assets under section 122R will then be taken into account in calculating the balancing adjustments to be made under the proposed new section 122K, the operation of which has been explained earlier in this memorandum. That amount will also be taken into account for the purpose of determining the deductions available to the new owners of the assets under the proposed new provisions of Division 10.

Section 122R follows the same broad principles as section 59AA of the Principal Act which was enacted in 1952 following a recommendation of the Commonwealth Committee on Taxation 1950-1954. Section 59AA applies where there are changes in interests in plant which is subject to depreciation allowances.

Section 122S: Commissioner to Determine Deductions Attributable to Particular Expenditure

The purpose of this section is to authorise the Commissioner to determine deductions that have been allowed under the proposed new Division 10 in respect of a particular item of expenditure where that item is part of one total sum for which deductions are allowed each year. For example, the proposed new section 122D provides for a deduction which is calculated by dividing the residual capital expenditure by the number of years in the estimated life of the mine. The residual capital expenditure is the sum of different items of expenditure incurred in different years. Where one of the items of allowable capital expenditure included in that sum is disposed of, lost or destroyed, it is necessary for the Commissioner to calculate the deductions that have been allowed in respect of that particular item so that balancing adjustments required under section 122K may be made.

Division 10AAA - Transport of Certain Minerals

Introductory Note

Division 10AAA proposes the allowance of deductions over a period of ten years for capital expenditure incurred on certain facilities used primarily and principally to transport minerals (or products of minerals) mined in Australia or the Territory of Papua and New Guinea for the purpose of earning assessable income. It will not, however, apply to facilities used in the transport of petroleum mined in Australia or the Territory. A petroleum pipe-line is already the subject of a special allowance under section 58 of the Principal Act.

Other features of the special deduction to be provided are, broadly, as follows:-

1.

The allowance will be available in respect of the undeducted expenditure incurred on or after 1 July 1961 on, or by way of contribution to, the cost of an eligible railway, road, pipe-line or other transport facility.

2.

Expenditure on earthworks, bridges, tunnels, etc. necessary in the construction of the facility, certain compensation payments made in connection with that construction, and payments for rights to construct the facility will be subject to the special deduction.

3.

The cost of transport facilities used wholly within the mine-site that is deductible under the proposed new Division 10 will not be within the scope of the allowance.

4.

The allowance will not extend to expenditure on railway rolling stock, road vehicles, ships or port facilities.

5.

A taxpayer will be eligible for the special deduction even though he is not himself engaged in mining operations which produce the minerals transported.

6.

Expenditure qualifying for the allowance will be deductible in equal instalments over ten years commencing with the first year in which the facility is used to transport minerals or their products. Where the expenditure was incurred between 1 July 1961 and the end of the 1966-67 income year, the first income year for the purposes of the allowance will be the income year ending 30 June 1968.

A more detailed explanation of the provisions of Division 10AAA is given in the notes that follow.

Section 123: Interpretation

Sub-section (1.) of section 123 contains definitions of terms used in the new Division to assist in the interpretation of the provisions of the Division.

"Prescribed mining operations": This term is given the same meaning as it has in the proposed new section 122. As explained in the notes on that section, the term means mining operations in Australia or the Territory of Papua and New Guinea for the extraction of minerals, other than petroleum, from their natural site. The operations must be for the purpose of gaining or producing assessable income.

"Processed materials": This term will mean minerals that have been subjected to treatment up to and including concentration. Materials resulting from sintering or calcining of a mineral will also be included. So will alumina, blister copper, and pellets or other agglomerated forms of iron. Other materials, or materials resulting from other processes, to the extent that they may in future be prescribed by regulation for the purposes of Division 10AAA, will also fall within the scope of the definition.

"Treatment": This word is given the same meaning as it has in the proposed new section 122. As explained in the notes on that section, it covers cleaning, leaching, crushing, grinding, breaking, screening, grading or sizing, concentration by a gravity, magnetic or electrostatic process and any other treatment that precedes concentration by one of those processes.

Sub-section (2.) is designed to include within the scope of the allowance certain classes of expenditure that might not otherwise qualify as part of the cost of constructing a transport facility.

Capital expenditure incurred in obtaining a right, whether by licence, permit or otherwise, to construct a transport facility and in paying any compensation to a property owner or lessee for any damage or loss caused by such construction will be specifically brought within the scope of the special deduction.

In addition, the sub-section extends the special deduction to expenditure incurred on earthworks, bridges, tunnels and cuttings that are necessary for the railway, road, pipe-line or other transport facility. However, the cost of railway rolling stock, road vehicles, ships or port facilities is to be excluded from the deduction. To the extent that items falling within these categories are plant, depreciation allowances will be available.

Section 123A: Application of Division

Section 123A specifies the circumstances in which capital expenditure may qualify for the special deduction authorised by Division 10AAA and quantifies that expenditure for the purposes of the deduction.

Sub-section (1.) states that capital expenditure on transport facilities will be eligible for the special deduction where the following conditions are met:-

1.

The expenditure has been incurred on or after 1 July 1961.

2.

The expenditure has been incurred on, or by way of contribution to expenditure by another person on, a railway, road, pipe-line or other transport facility.

3.

The railway, road, pipe-line or other facility has been constructed or acquired for use primarily and principally for the transport -

(a)

of minerals obtained from carrying on by any person of prescribed mining operations; or

(b)

of processed materials produced from such minerals,

other than transport wholly within the site of prescribed mining operations.

4.

The specified transport facility is to be used in carrying on a business for the purpose of gaining assessable income.

It is not necessary that the expenditure on a transport facility be incurred by the mine-owner who is producing the minerals or products of minerals transported.

The transport of employees and supplies to the mine site as well as transporting minerals away from the mine site will not exclude expenditure on a railway or a road from the special deduction provided the railway or road is constructed for use and used primarily and principally for the transport of minerals and their products.

Paragraph (a) of sub-section (1.) provides for the reduction of the expenditure that would otherwise qualify under this section by the sum of any deductions allowed or allowable up to the end of the income year ended 30 June 1967 in respect of that expenditure. These deductions may have been allowed under Division 10 of the Principal Act, the lease provisions of Division 4 of that Act, or under the depreciation provisions of that Act.

Paragraph (b) provides for a further reduction of that expenditure by any amount allowed as a deduction in respect of an appropriation of income under section 122B of the Principal Act up to the end of the income year ended 30 June 1966. The reduction under paragraph (b) is the amount of the deduction in respect of the appropriation less so much of that appropriation as was not expended in respect of transport facilities in the next succeeding year of income.

Paragraph (b) does not take into account an appropriation of income in the year of income that ended on 30 June 1967 because, by virtue of sub-clause (6.) of clause 21, an amount equal to that deduction will be included in the assessable income of the year of income ending on 30 June 1968. It is not, therefore, necessary for an adjustment to be made in respect of such an appropriation.

Sub-section (2.) provides for a further reduction of the amount to which the special deduction may apply by excluding any amount of capital expenditure for which the taxpayer has been recouped, or is entitled to be recouped, where the amount of the recoupment is not, or will not be, included in the taxpayer's assessable income.

Section 123B: Deduction of Expenditure

Section 123B is the operative provision and will authorise the allowance of deductions at the flat rate of 10 per cent per annum of the capital expenditure qualifying for the special deduction under the proposed new section 123A.

Sub-section (1.) provides that the deduction is dependent upon the transport facility being used primarily and principally for a purpose referred to in section 123A. If this test is met, a deduction of one-tenth of the capital expenditure to which the Division applies is allowable in the first year of income in which the facility is so used and in each of the next succeeding nine years.

Where the expenditure on the facility was incurred prior to the end of the 1966-67 income year and the facility is being used during the 1967-68 income year primarily and principally for a purpose referred to in section 123A, one-tenth of the amount of the expenditure undeducted as at the end of the 1966-67 income year will be allowed as a deduction for the 1967-68 income year and for each of the next nine income years.

Sub-section (2.) provides that a deduction is not allowable under section 123B where property the expenditure on which is deductible under Division 10AAA is disposed of, lost or destroyed or where the property ceases to be used primarily and principally for the transport of minerals and products of minerals. In these circumstances, a deduction is not allowable in the year in which the disposal, loss or destruction, or the cessation of use, occurred or in any succeeding income year. If property which has ceased to be used primarily and principally for the transport of minerals and products of minerals is, in the future, again used for that purpose, the special deduction may be allowed in respect of the property in accordance with the proposed new section 123C(6.) explained later in this memorandum.

Section 123C: Disposal, Loss, Destruction or Termination of Use of Property

Section 123C provides for balancing adjustments to be made when property the expenditure on which has been subject to deductions under Division 10AAA is disposed of, lost or destroyed or ceases to be used primarily and principally for the transport of minerals and products of minerals. Where any of the expenditure has been allowed as a deduction under other provisions of the law before Division 10AAA comes into operation, the expenditure so allowed will, for the purposes of section 123C, be treated as having been allowed under Division 10AAA.

Sub-section (1.) provides that the section applies where deductions have been allowed or are allowable in accordance with Division 10AAA in respect of expenditure on property that has been disposed of, lost or destroyed, or that has ceased to be used primarily and principally for the transport of minerals or products of minerals.

Sub-section (2.) applies where the sum of the deductions allowed or allowable in respect of expenditure on the property and the consideration receivable, or the value of the property at the date of termination of use, exceeds the total capital expenditure of the taxpayer on that property. In such a case, so much of the excess as does not exceed the deductions allowed or allowable is included in the taxpayer's assessable income.

Sub-section (3.) applies in the converse case where the total expenditure of the taxpayer on the property exceeds the sum of the deductions allowed or allowable in respect of that expenditure and the consideration receivable, or the value of the property at the date of termination of use. In these circumstances, the excess is allowed as a deduction to the taxpayer.

Sub-section (4.) defines the term "the consideration receivable in respect of the disposal, loss or destruction" used in the section. In broad terms, it means the net sale price on a sale of property or the amount of any insurance receivable in the case of a loss or destruction of property. If, on a sale of a leasehold property, an amount of the consideration receivable is included in the taxpayer's assessable income under the lease provisions of the Principal Act, the amount so included is not again taken into account for the purposes of calculating the balancing adjustment in respect of the property under section 123C.

Sub-section (5.) is a drafting measure the primary purpose of which is to ensure that where balancing adjustments are made under section 123C, they shall take into account any deductions allowed in respect of the property concerned under any other provisions of the Principal Act.

As already explained in relation to the proposed new section 123A, expenditure on facilities used to transport minerals and products of minerals incurred since 1 July 1961 will be brought within the scope of the special deduction. The deduction will be based on so much of the expenditure as has not been allowed as deductions under provisions of the Principal Act for the 1966-67 income year or a previous income year.

It is proposed that, in the event of property in respect of which the special deduction is allowable being disposed of, lost or destroyed, or ceasing to be used for the transport of minerals and products of minerals, the balancing adjustment shall be made under section 123C. In determining these adjustments it will be necessary for any deductions allowed under other provisions of the Principal Act to be taken into account on the same basis as if they had been allowed under Division 10AAA.

As a corollary the sub-section will also ensure that balancing adjustments in respect of the property concerned are not made under any other provision of the Principal Act.

Sub-section (6.) provides for the case where property which has ceased to be used primarily and principally for the transport of minerals and products of minerals again comes into use for that purpose. In such a case, so much of the expenditure on the property as the Commissioner determines shall be deemed to be capital expenditure to which Division 10AAA applies incurred in the year in which the property again comes into use. A taxpayer will have the usual rights of objection and reference to a Taxation Board of Review if dissatisfied with the Commissioner's determination.

Section 123D: Transactions Between Parties Not at Arm's Length

This section is designed as a safeguard to the revenue in relation to sales of property to which Division 10AAA applies where the Commissioner is satisfied that the purchaser and the vendor were not dealing with each other at arm's length. This may occur, for example, where property is sold by a subsidiary company to a parent company or an associated company.

In these circumstances, the Commissioner will be authorised to adopt an amount that, in his opinion, is the value of the property at the date of the transaction and this amount may be greater or less than the purchase price. The value so adopted will have effect in the assessments of both the vendor and the purchaser.

The provision will apply to the purchase of property only where the cost either qualified for the special deduction authorised by Division 10AAA in the hands of the vendor or qualifies for that deduction in the hands of the purchaser.

A taxpayer who is dissatisfied with a decision of the Commissioner under this section will have the usual rights of objection and reference to a Taxation Board of Review.

Section 123E: Deductions Not Allowable under Other Provisions

The purpose of this section is to prevent double deductions in respect of an amount of expenditure on transport facilities which qualifies for the special deduction under Division 10AAA.

Sub-section (1.) provides that where the whole or part of an amount of capital expenditure has been allowed or is allowable as a deduction under Division 10AAA, that expenditure shall not be deductible, nor shall it be taken into account in ascertaining the amount of an allowable deduction, under any provision of the Principal Act other than a provision of Division 10AAA.

Sub-section (2.) modifies the effect of sub-section (1.) in the case of property which has ceased to be used primarily and principally for the transport of minerals and products of minerals but is used for purposes which bring it within the scope of the depreciation provisions of the Principal Act.

In the application of the depreciation provisions, the property will be treated as having been acquired by the taxpayer at a cost equal to the amount that, in the opinion of the Commissioner, was its value when it commenced to be used for other purposes. As with other provisions of this nature, a taxpayer will have the usual rights of objection and reference to a Board of Review if dissatisfied with the Commissioner's determination.

Section 123F: Change in Interests in Property

Section 123F has effect where there is a transfer of interests in property the expenditure on which has been deductible under Division 10AAA including transfers which are associated with the formation, variation or dissolution of a partnership.

The section will apply in respect of changes in interests in property used to transport minerals and products of minerals on the same basis as the proposed new section 122R will apply where there are changes in the interests in property used in carrying on mining operations. An explanation of the provisions of section 122R has been given earlier in this memorandum.

In broad terms, section 123F will treat a change in interests in property as a disposal of the property for the purposes of the provisions of Division 10AAA. An amount specified in a written agreement under which the change occurred as the value of the property for the purposes of the agreement will generally be treated as the consideration receivable on the disposal of the property. If no amount is so specified, the Commissioner is authorised to determine an amount as representing the consideration receivable for the purpose of applying the provisions of Division 10AAA in the assessments of both the transferors and the transferees.

The amendments proposed by clause 17 will apply in assessments based on income derived during the 1967-68 year of income and subsequent years.

Clause 18: Property recommenced to be used in Prospecting or Mining for Petroleum.

This clause proposes a drafting amendment to section 124DM of the Principal Act which is consequential upon the amendments to that Act proposed by clause 17.

Section 124DM applies in two classes of cases -

(i)

where property that has been used for purposes other than petroleum prospecting or mining commences to be used in petroleum prospecting or mining; and

(ii)

where property that has ceased to be used in petroleum prospecting or mining is again used for those purposes.

In these cases, the Commissioner is required to determine an amount which may appropriately be treated as capital expenditure incurred in the year in which the property commences or re-commences to be used for petroleum prospecting or mining operations. The amount so determined is then eligible for the special deductions provided in Division 10AA of the Principal Act in respect of such expenditure when a company produces petroleum in commercial quantities.

Section 124DM of the Principal Act is expressed to operate notwithstanding the provisions of section 124C of that Act. The latter section provides that capital expenditure deductible under Division 10 of the Principal Act is not to be allowed as a deduction under any other provision of that Act. Accordingly, the prohibition in section 124C does not have effect where property ceases to be used for general mining and is transferred for use in petroleum prospecting or mining.

Under the amendments proposed by clause 17 of the Bill, the provisions of section 124C will be re-enacted in the proposed new section 122N. The amendment proposed in section 124DM will ensure that that section continues to operate for the 1967-68 income year and subsequent years in the same way as it has for earlier years.

Clause 19: Double Deductions.

This clause proposes a drafting amendment to section 124DN of the Principal Act which is also consequential upon the amendments to that Act proposed by clause 17.

Section 124DN provides that expenditure in petroleum mining that qualifies as allowable capital expenditure under Division 10AA of the Principal Act is not to be deductible, or to be taken into account in determining the amount of an allowable deduction, under any other provision of the Principal Act.

However, this restriction is modified where property that ceases to be used for purposes which qualify under Division 10AA is used for other purposes in producing assessable income.

The reference in the section to section 122(6.) of the Principal Act permits such property to be brought within the scope of Division 10 where the property is used for purposes which qualify under that Division, i.e., in carrying on mining operations for minerals other than petroleum.

By virtue of the amendments proposed by clause 17, the provisions of section 122(6.) will be re-enacted in the proposed new section 122C(2.). This has necessitated a drafting amendment in section 124DN to ensure that it continues to operate with the same effect as at present.

The amendment proposed by clause 19 will commence to apply in assessments based on income derived during the 1967-68 income year.

Clause 20: Amendment of Assessments.

This clause will amend section 170 of the Principal Act which governs the power of the Commissioner of Taxation to amend income tax assessments.

Sub-section (10.) of section 170 provides that nothing in section 170 shall prevent the amendment of an assessment at any time for the purpose of giving effect to specified provisions of the Principal Act.

By this clause, it is proposed to insert in sub-section (10.) of section 170 a specific reference to section 77C and to sub-section (2.) of section 122B.

As explained in the notes on clause 11 of this Bill, section 77C is to be inserted in the Principal Act to provide a deduction in respect of calls paid on certain shares in mining or prospecting companies and on shares in afforestation companies. Entitlement to the deduction for calls paid on mining shares will be dependent upon the company that receives the calls declaring that the money has been, or will be, expended on exploring or prospecting for minerals. If, after deductions have been allowed to shareholders of a company in consequence of such a declaration, the company expends the calls specified in the declaration for purposes other than exploration or prospecting, one-third of the amount so expended is to be included in the company's assessable income.

The inclusion of the reference to section 77C in section 170 will provide the necessary authority for the Commissioner to amend an assessment of a company where it does not expend moneys received as calls in accordance with its declaration and, in consequence, one-third of the amount so expended is to be treated as assessable income of the company.

Section 122B(2.) is, broadly stated, designed to limit the deduction available under the proposed new Division 10 for the cost of a mining or prospecting right or mining or prospecting information to the undeducted capital expenditure of the vendor plus any amount included in the vendor's assessable income in consequence of the sale of the right.

The inclusion of the reference to section 122B(2.) in section 170(10.) will enable an assessment of a purchaser or of a vendor of a right or information to be amended in a year subsequent to the transaction if it is ascertained at that later date that the amounts used in the calculation do not accord with the facts as ultimately established.

Clause 21: Transitional Provisions in Relation to Capital Expenditure on Mining.

This clause, which will not amend the Principal Act, proposes a number of provisions that are designed to ensure that the transition from existing provisions of the Principal Act governing the special deductions provided for mining companies to the new provisions proposed by clause 17 is effected on an equitable basis.

Sub-clauses (1.) and (2.) have important effects. Sub-clause (1.) will deem certain expenditure to be "allowable capital expenditure" for the purposes of the new Division 10, even though that expenditure would not otherwise qualify as "allowable capital expenditure" for those purposes.

The expenditure to be deemed to be "allowable capital expenditure" by the sub-clause is expenditure incurred by a mining enterprise -

(a)

after the end of the 1966-67 income year of the enterprise and on or before the date on which the Bill was introduced; or

(b)

after the date on which the Bill was introduced, if incurred under a contract entered into on or before that date,

and which, in either case, is expenditure that would have qualified for deduction under the provisions of the existing Division 10 of the Principal Act.

The effect of the sub-clause will, in broad terms, be that any such expenditure incurred, or contracted for, on or before the date of introduction of the Bill will not be excluded from the special deductions available under the new Division 10 if it would have qualified for the special deductions available under the old Division 10. This is designed to ensure that no mining enterprise will be at a disadvantage under the new Division in relation to expenditure incurred, or to which it was committed by contract, at the time the Bill was introduced, as compared with its position in relation to that expenditure under the existing Division.

The effects of sub-clause (1.) as to expenditure on certain transport facilities is, however, modified to some extent by sub-clause (2.), an explanation of which is set out in ensuing paragraphs.

Sub-clause (2.) relates to expenditure on transport facilities subject to the deduction over ten years provided by the new Division 10AAA.

If such expenditure has been incurred, or contracted for, within the time limits referred to in sub-clause (1.), and the expenditure is such that it would have qualified for deduction under provisions of the existing Division 10, the taxpayer may make an election under section 122E of the new Division 10 to have the whole of the expenditure deducted in the year of incurrence. This year may be the income year 1967-68 or a later year. If he does not make this election, the expenditure will fall for consideration under the new Division 10AAA.

The essential effect is that, as to expenditure on transport facilities incurred, or contracted for, within the specified time limits, a taxpayer does not lose any rights to deductions which he has under the existing Division 10.

Sub-clause (3.) is complementary to sub-clause (2.). It provides that where a taxpayer has elected to have expenditure on transport facilities deducted in the year in which it is incurred, and a deduction has been so allowed, the deduction will be treated as having been allowed under Division 10AAA. This is designed to ensure that the deduction is taken into account for the purpose of calculating, under the proposed section 123C, any balancing adjustments necessary on a subsequent disposal or loss of property on which the expenditure was incurred.

Sub-clause (4.) relates to exploration or prospecting expenditure incurred by a taxpayer for which he has not been allowed, or is not entitled to, income tax deductions. This could occur where the taxpayer has not yet commenced to carry on mining operations. In these circumstances, section 123AA(3.) of the Principal Act provides, in effect, that the undeducted expenditure can be carried forward indefinitely until such time as the taxpayer does commence such operations.

By clause 17, the provisions of section 123AA(3.) are being re-enacted in section 122J(3.). The purpose of sub-clause (4.) is to ensure that this change in the law will not affect a taxpayer's existing entitlement to future deductions for unrecouped exploration or prospecting expenditure.

Sub-clause (5.) applies where a taxpayer has elected under section 122AB of the Principal Act to have expenditure on housing and welfare deducted over five years.

The provisions of section 122AB are, by clause 17, being re-enacted in the proposed new section 122F. Sub-clause (5.) will ensure that the deductions continue to be allowable under section 122F on the present basis and are not disturbed by the proposed changes in the law.

Sub-clause (6.) relates to deductions allowed in respect of appropriations of income in respect of proposed "allowable capital expenditure". As explained in the notes on the proposed new section 122G to be inserted in the Principal Act by clause 17, a deduction is allowable in respect of an appropriation of income to meet "allowable capital expenditure" of the next succeeding year. In that next succeeding year, an amount equal to the appropriation is included in assessable income and a deduction is allowed for allowable capital expenditure actually incurred. This scheme will first apply in the 1967-68 income year and, accordingly, it is necessary to provide that an amount is included in the assessable income of the 1967-68 income year equal to the deduction for the appropriation allowed in the 1966-67 income year. Sub-clause (6.) will achieve this result.

Sub-clause (7.) provides for the continued operation of section 124AA of the Principal Act for the year of income that ends on 30th June, 1968.

Section 124AA applies in respect of compensation payments for conversion of property of a mine-owner for use in connection with the system of decimal currency. Capital expenditure incurred by a mine operator in converting plant used in mining operations for use with decimal currency may qualify for deduction under Division 10 of the Principal Act. Section 124AA accordingly provides that the residual capital expenditure of the mine operator shall be reduced by an amount received from the Commonwealth in respect of that conversion. If the payment exceeds the residual capital expenditure, the excess is included in the assessable income of the mine operator.

As it appears that the 1967-68 income year will be the last year in which these compensation payments will be made, sub-clause (7.) provides for the continuation of section 124AA for that year.

Sub-clause (8.) provides a special transitional provision which will not have a wide application.

It will apply only where the following conditions are met -

(a)

the taxpayer has agreed, on or before the date of introduction of the Bill, with the Commonwealth or a State to construct a plant to process minerals he has mined;

(b)

under the agreement the taxpayer is required (unless specific approval is given to the contrary) to construct the plant at or in the vicinity of the mine site;

(c)

the plant is constructed or installed at or in the vicinity of the mine site; and

(d)

the taxpayer incurs capital expenditure on the construction of the plant and associated improvements within the period specified in the agreement.

If all of these conditions are satisfied, the expenditure incurred by the taxpayer after the date on which the Bill was introduced into Parliament will be treated, for the purposes of the transitional provisions, as if the taxpayer had entered into a contract to incur the expenditure on or before that date - see notes on sub-clauses (1.), (2.) and (3.). The essential effect is to preserve to a taxpayer any rights to deductions for the cost of the plant which would, in the circumstances described, have been available under the old Division 10 if it had continued in operation and are not available under the new Division 10.

Clause 22: Transitional Provisions in relation to Uranium Mining.

Clause 22 proposes special transitional provisions to meet the position of uranium mining enterprises which earn assessable income after the end of the 1967-68 year of income. The clause will not amend the Principal Act.

Section 23D of the Principal Act exempts income earned from uranium mining and treatment operations in Australia or the Territory of Papua and New Guinea. The exemption expires at the end of the 1967-68 year of income. Accordingly, income earned from such operations after that date will be assessable to uranium mining enterprises. However, in the absence of special transitional provisions capital expenditure incurred by a uranium mining enterprise in carrying on uranium mining operations during the period when the exemption applied would not be deductible from assessable income earned in future years.

In broad terms, clause 22 proposes the allowance of deductions in future years for expenditure incurred by a uranium mining enterprise during the exempt period on exploration or prospecting for uranium, plus capital expenditure on development of the mining property, on mining plant and on housing and welfare to the extent that the capital expenditure has not been recouped from the net exempt income derived from uranium mining and treatment operations during the exempt period. The expenditures will be deductible - over the life of the relevant mine - from assessable income derived from mining for uranium or for other minerals, except petroleum.

Sub-clause (1.) specifies the classes of capital expenditure incurred during the income years 1952-53 to 1967-68 inclusive ("the exempt period") which may qualify for deduction under the special transitional provisions. The provisions do not apply to expenditure which has been allowed as deductions to a uranium mining enterprise or which is deductible under provisions of the Principal Act.

Paragraph (a) refers to expenditure on exploration or prospecting for uranium incurred during the exempt period.

Paragraph (b) refers to certain capital expenditure incurred in connection with uranium mining operations up to the date on which the Bill was introduced into Parliament, or after that date if made under a contract entered into on or before that date. This is expenditure incurred on development of the uranium mining property, on uranium mining plant, and on housing and welfare if the housing and welfare is situated on or adjacent to the uranium mining property.

Paragraph (c) is complementary to paragraph (b). It refers to expenditure, not covered by paragraph (b), incurred during the 1967-68 income year, that would have qualified as "allowable capital expenditure" under the proposed new provisions of Division 10 to be inserted in the Principal Act by clause 17, if the income from uranium mining operations had not been exempt from tax for that year.

Sub-clause (2.) is the operative provision. The practical effect of the provision is to entitle a uranium mining enterprise to deductions for eligible capital expenditure over the life of the mine when it carries on mining operations to earn assessable income during the 1968-69 income year or subsequent years.

For the purposes of the provision, eligible capital expenditure will include expenditure on exploration or prospecting for uranium incurred during the exempt period which has not been allowed as deductions and is not deductible under provisions of the Principal Act. Eligible capital expenditure will also include so much of the capital expenditure referred to in paragraphs (b) and (c) of sub-clause (1.) as exceeds the net exempt income earned by the taxpayer from uranium mining and treatment operations.

Sub-clause (3.) defines the term "the net exempt income from uranium" used in sub-clause (2.). Broadly, the term means so much of the exempt income earned from uranium mining and treatment operations as remains after taking into account operating expenses that would have qualified for deduction (otherwise than under the special mining provisions) if the income had not been exempt.

Sub-clause (4.) makes provision for the case where property the expenditure on which is deductible under the special transitional provisions is disposed of, lost or destroyed, or ceases to be used in connection with mining operations. For the purpose of any balancing adjustments necessary in respect of such property, the cost of the property will be treated as that part of the capital expenditure on it that is taken into account for deductions by virtue of the special transitional provisions.

Clause 23: Application of Amendments.

This clause specifies the commencing date for the application of proposed amendments affecting assessments. These dates have been referred to in the notes on the relevant clauses.