Explanatory Memorandum
(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)Chapter 18 - Depreciation of employee amenity property
Overview
18.1 This amendment will allow the concessional rate of depreciation for employee amenities to be available on a wholly-owned company group basis.
Summary of proposed amendments
18.2 The amendment will allow wholly-owned company groups to use employee amenities owned by any group member as a resource of the whole group, without losing entitlement to the concessional depreciation rates [Clause 106].
18.3 Applies from the commencement of the 1993/94 year of income in relation to existing and future property [Clause 109].
Background to the legislation
18.4 The plant depreciation provisions allow taxpayers to write-off the otherwise non-deductible capital cost of plant used in income-producing activities. Depreciation rates are generally set according to the effective life of the relevant asset. So, the shorter the effective life, the higher the applicable rate of depreciation and vice versa.
18.5 Special depreciation rates are available for certain categories of plant. One of those categories is "employee amenities": property used by a taxpayer principally for the purpose of providing clothing cupboards, first aid, rest-room or recreation facilities, or meals or facilities for meals for persons employed by the taxpayer or for the care of children of those persons. The minimum depreciation rate for such property is 33% prime cost or 50% diminishing value, irrespective of actual effective life [subsection 55(4)].
18.6 Further, plumbing fixtures and fittings ordinarily do not qualify as plant and therefore are not eligible for plant depreciation deductions; instead they qualify for deduction under the less concessional capital allowance for buildings [Division 10D]. However, they are treated as plant where provided principally for employees or for the care of children of employees [paragraph 54(2)(c)].
18.7 A requirement of these employee amenities concessions is that the property must be used principally in providing the relevant facilities for employees of the taxpayer or for the care of children of those employees. This requirement can make it difficult for some wholly-owned company groups to qualify for the concessions.
18.8 In some circumstances, employees of various companies within a wholly-owned group may share the use of facilities owned by one of the companies; for instance, a staff canteen or child day-care centre. If the majority of employees using the facilities are not employed by the company that owns the facilities, it would not be possible to say that the facilities are principally used by its employees and the concessions would therefore not be available.
18.9 Such an outcome is not appropriate and is inconsistent with the general trend in income tax law to treat wholly-owned company groups as if they were a single taxpayer. For instance, companies within wholly-owned groups are permitted to transfer losses between each other. Similarly, capital gains tax and capital allowance rollover relief is available for disposals of assets within wholly-owned company groups. The effect of these provisions is to treat wholly-owned company groups as if a single taxpayer.
18.10 Accordingly, the depreciation employee amenities concession is to be available on a wholly-owned group company basis; that is, the concession will also apply where relevant property of a company within a wholly-owned company group is provided principally for use by employees of any companies within the same company group, or for the care of children of any of those employees.
Explanation of the amendments
Plumbing fixtures and fittings
18.11 The existing law treats as plant, plumbing fixtures and fittings in premises if they are provided principally as "amenities" for the benefit of employees of the person who owns the fixtures and fittings. The present requirement that the amenities be provided principally for use by employees of the owner is to be amended in the case of companies so that it applies on a wholly-owned company group basis. This is achieved, in effect, by extending the reference to employees of the owner to include a reference to employees of a company that is related to the owner. [Clause 107, which modifies existing paragraph 54(2)(c)]
18.12 The meaning of "related company" is the same as for the purposes of existing section 51AE, which deals with entertainment expenses. A company is related to another company if one of the companies is a subsidiary of the other or both are subsidiaries of the same company [existing subsections 51AE(16) to (19)]. Broadly, a company is a subsidiary of another company if all of the shares in the company are beneficially owned by the other company.
18.13 Subsection 54(4) provides the special minimum depreciation rate for items of plant used by a taxpayer principally for the purpose of providing certain amenities for the benefit of employees of the taxpayer.
18.14 The current requirement that the amenities be used by a taxpayer principally for use by employees of the taxpayer is to be amended in the case of companies so that it applies on a wholly-owned company group basis. This is achieved, in effect, by extending the reference to employees of the taxpayer to include a reference to employees of a company that is related to the taxpayer, within the meaning of existing section 51AE (discussed above). [Clause 108, which substitutes a new subparagraph 55(4)(b)(i) for the existing subparagraph]
Application of the amendments
18.15 Both amendments commence from the start of the 1993-94 year of income. [Clause 109]