Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)Amendments to capital allowance rollover relief
Summary of proposed amendments
Purpose of amendment: To make capital allowance rollover relief available where:
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- assets are disposed of more than once in a single year; or
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- assets that were fully written-off at the time they were acquired are disposed of again.
Date of Effect: Applies from the same time as the existing provisions.
Taxpayers are able to obtain deductions for the capital cost of income producing assets under a number of provisions; examples of those capital allowances include: plant depreciation, mining and quarrying, and industrial property.
Where such deductions have been allowed, the disposal of an asset can result in assessable recoupments of deductions. That happens when the amount received for the disposal of an asset is more than its written down value (that is, cost less deductions allowed).
Most of the capital allowance provisions permit taxpayers to obtain a deferral (that is, rollover) of liability to tax on the disposal of assets where there is no real change in the ownership of the assets (for example, on the transfer of assets within wholly-owned company groups).
Under rollover relief, the taxpayer acquiring the assets is required to include as assessable income any subsequent recoupment of deductions allowed to the earlier owner.
Explanation of proposed amendments
A requirement of the various capital allowance rollover relief provisions is that deductions have been allowed to the taxpayer disposing of an asset. That is an obvious requirement. However, that requirement can inappropriately deny rollover relief in certain circumstances.
For instance, most of the capital allowance provisions only permit deductions to taxpayers who own assets at the end of an income year. So, deductions are not available if a taxpayer both acquires and disposes of an asset within the same year. [An exception is plant depreciation which permits proportional deductions for property owned for only part of a year of income.]
Some business reorganisation can involve successive transfers of particular assets within a single year. For example, a company group comprising a large number of companies may wish to rationalise the number of companies. To obtain stamp duty concessions for the reorganisation, it may be necessary to transfer assets successively through a chain of companies rather than directly to the company which is to hold the assets.
Under the existing rules, if those successive transfers were to occur within a single year, rollover relief would be denied to all but the first of such successive transfers because the subsequent transferors would not be entitled to deductions - they didn't own the assets at the end of the year. In effect, rollover relief would not be available for such reorganisations.
Similarly, there could be cases where a group company acquires an asset from another group company and that asset had been fully written-off at the time of acquisition. The new owner would not be entitled to any deductions and so rollover relief would not be available on any subsequent disposal.
Accordingly, the various capital allowance rollover relief provisions are to be amended so that the requirement that deductions have been allowed to a taxpayer disposing of an asset only applies to the first taxpayer in a chain of disposals which otherwise qualify for rollover relief.
The following provisions are covered by these amendments:
| Clause | Subsection | Description |
|---|---|---|
| 46 | 58(7A) | Plant and articles |
| 47 73AA(7) Scientific research buildings | ||
| 48 | 122JAA(22A) | Mining (other than petroleum) |
| 49 | 122JG(12A) | Quarrying |
| 50 | 123BBA(16) | Transport of minerals |
| 51 | 123BF(9) | Transport of quarry materials |
| 52 | 124AMAA(18A) | Petroleum mining |
| 53 | 124GA(5) | Access roads in timber operations |
| 54 | 124JD(5) | Timber mill buildings |
| 55 | 124PA(6) | Industrial property |
The existing measures - which confer rollover relief either where certain forms of capital gains tax rollover relief apply or, in the case of partial changes in ownership of assets, where an election is made by all the persons owning the property both before and after that change - apply to disposals occurring after 19 December 1991.
Prior to those measures, an optional form of rollover relief was available for intra company group asset transfers occurring after 6 December 1990 and before 20 December 1991.
The amendments apply to both measures. [Clauses 56 and 57]
Taxpayers can obtain amendments to assessments affected by these amendments by making an application under existing subsection 170(6).