Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)Development Allowance on Property Installed on Leased Crown Land
Purpose of amendment: The amendment will extend the development allowance provisions to permit the allowance in respect of capital expenditure incurred on installation of plant on leased Crown land, provided the expenditure satisfies all other existing criteria to qualify for the deduction.
Date of Effect: This amendment applies in respect of expenditure incurred by a taxpayer under contracts entered into, or in respect of construction which commenced, after 26 February 1992.
The development allowance legislation was introduced into the Income Tax Assessment Act 1936 , through Taxation Laws Amendment (No. 3) Act 1992 , as part of the "One Nation" policy. The development allowance gives a tax deduction of 10% of capital expenditure on plant and equipment acquired by taxpayers for use in conducting large Australian projects, costing $50 million or more, which meet certain other criteria. The allowance is in addition to the depreciation of the capital expenditure.
Subsection 82AQ(3) establishes an ownership test, as a pre-condition for the development allowance deduction. Under existing law the deduction may be denied to taxpayers who incur capital expenditure installing units of property on leased land. Depending on the degree of attachment of the property to the land, the law may treat the lessor as owner of the property - not the taxpayer who incurs the expenditure.
The depreciation provisions of the income tax legislation also contain an ownership test. Those provisions were revised, in the same legislation in which the development allowance was introduced, to extend the depreciation deduction to taxpayers who were otherwise denied the deduction for plant installed on leased Crown land - by treating them as if they are the owners of the plant. Those provisions are further revised in other proposed amendments contained in this Bill.
The expansion of the depreciation provisions should have been extended to the development allowance. At present, taxpayers who incur capital expenditure installing property on leased Crown land, which would otherwise meet the development allowance provisions, could qualify for a depreciation deduction but be denied the development allowance - due to different ownership tests. The proposed amendment will ensure the same ownership test is applied for depreciation and for development allowance purposes. That test will be as revised by this Bill.
Explanation of proposed amendment
The effect of the amendment is that lessees of leased Crown land will be treated as owners of property installed on that land, for development allowance purposes, where they are treated as the owners for depreciation purposes.
The same treatment will be assured by :
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- providing that where a taxpayer is the lessee of a Crown lease and is treated by the application of section 54AA as the owner, for depreciation purposes, of property installed on leased Crown land, such a taxpayer will also be treated as the owner of that property under the development allowance provisions; and
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- defining terms in the new development allowance provision to have the same meaning as in section 54AA.
The extended meaning of "Crown lease" (as proposed in Clause 35) and the term "lessee" (proposed to be inserted by Clause 35), in section 54AA, will apply to the extended development allowance provision. For further explanation, see the comments above on Division 11 of this Bill.
As the effective owner of such unit of property, a taxpayer who is the lessee of Crown land will not now be denied the development allowance deduction solely on ownership tests. Taxpayers must still satisfy all other existing provisions of the development allowance legislation to qualify for the deduction, including the requirement to incur expenditure on a new unit of eligible property and hold a pre-qualifying certificate in respect of such plant expenditure.
The amendment applies in accordance with the original development allowance provisions, ie. in respect of expenditure incurred by a taxpayer under contracts entered into, or in respect of construction which commenced, after 26 February 1992.