Explanatory Memorandum
(Circulated by authority of the Treasurer,the Hon. Peter Costello, MP)
Chapter 11 - Capital allowances for primary producers and some land-holders
This part explains the rewritten capital allowances that are available to primary producers and some land-holders who use land for business purposes.
These provisions are contained in Division 387 in Schedule 1 to the Tax Law Improvement Bill 1997.
Transitional and consequential amendments for the rewritten provisions are contained in Schedule 11 to the Bill.
This chapter covers
- •
- the rewritten provisions in Division 387 in Schedule 1 to the Tax Law Improvement Bill 1997; and
- •
- the transitional provisions and consequential amendments for those provisions in Schedule 11.
Division 387 restates provisions of the 1936 Act that allow deductions for particular capital expenditures incurred by primary producers and some land-holders.
Part A summarises Division 387.
Part B explains proposed changes to the content of the current provisions.
Part C explains why some provisions of the 1936 Act have not been rewritten.
Part D explains the transitional provisions which set out how and when the rewritten provisions will apply.
Part E explains the amendments that need to be made to the 1997 Act and the 1936 Act as a consequence of the rewriting of the 1936 Act. These provisions are located in Parts 2 and 3 of Schedule 11.
A. Summary of the new law
Guide to Division 387: Capital allowances for primary producers and some land-holders
Division 387 allows deductions for capital expenditure on landcare operations, water conservation or conveyance, establishment of grapevines, mains electricity supply, telephone lines and forestry roads and timber mill buildings by taxpayers who use land in primary production and some other types of businesses. [section 387-1]
Landcare operations [Subdivision 387-A]
Subdivision 387-A, which applies to primary production businesses and businesses that derive income from rural land, will allow a deduction for capital expenditure on landcare operations. [section 387-50]
Capital expenditure incurred in a landcare operation on Australian land is deductible if the land is used:
- •
- in a primary production business; or
- •
- in a business carried on to produce assessable income from rural land. [subsection 387-55(1)]
This does not include mining or quarrying. [paragraph 387-55(1)(b)]
When is the deduction available?
In the year in which you incur the expenditure. [subsection 387-55(2)]
The following are landcare operations:
- •
- fencing to separate different land classes under an approved management plan;
- •
- fencing to exclude livestock or vermin from degraded areas, to limit the degradation, and to help reclaim those areas;
- •
- constructing a levee, or similar improvement;
- •
- constructing drainage works;
- •
- operations for eradicating, exterminating, or destroying animal pests, or destroying plant or weed growth; and
- •
- operations for preventing or fighting land degradation. [section 387-60]
What is an approved management plan for land?
A plan that shows:
- •
- the land classes;
- •
- the location of fences necessary to separate land classes to prevent land degradation; and
- •
- the kind of fencing and how it would prevent land degradation.
It need not relate to the whole of the land used for business purposes.
The plan must have been prepared or approved by an authorised officer of a State or Territory government department or authority responsible for land conservation; or by an approved farm consultant . [sections 387-80, 387-85, 387-90]
Plant deductible under this Subdivision is:
- •
- a fence covered by the definition of landcare operation ; or
- •
- specified dams and structural improvements. [subsection 387-65(1)]
A deduction may be reduced if, during the income year in which you incur the capital expenditure, the land is used other than in the relevant business. [section 387-70]
If a partnership incurs expenditure on a landcare operation , partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. [section 387-75]
Common rules are rules that apply to more than one kind of capital allowance. They are contained in Division 41 of the Income Tax Assessment Act 1997. Common rule 2, as modified, will apply to landcare. [subsection 387-65(2)]
Recoupment of deductible expenditure is generally treated as assessable income of the income year in which the recoupment is received. [Subdivision 20-A]
Facilities to conserve or convey water [Subdivision 387-B]
Subdivision 387-B, will allow a deduction for facilities to conserve or convey water. [section 387-120]
You can deduct capital expenditure on a water facility that is primarily and principally for conserving or conveying water for use in a primary production business in Australia. [section 387-125(1)]
When is the deduction available?
The deduction is spread over 3 years. [subsection 387-125(2)]
A water facility is plant or a structural improvement for conserving or conveying water. [section 387-130]
You deduct a reasonable proportion if the water facility is not wholly for use in a business of primary production or for producing assessable income. [section 387-135]
Partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. [section 387-150]
Common rule 2, as modified, will apply. [section 387-145]
The recoupment provisions will apply. [Subdivision 20-A]
Establishing grapevines [Subdivision 387-D]
Subdivision 387-D will allow a deduction for capital expenditure on grapevines used in primary production businesses. [section 387-300]
You can deduct capital expenditure in establishing a grapevine that you own in Australia and use in a primary production business. [section 387-305(1)]
The deduction is not available for expenditure on draining or clearing land. [section 387-310]
When is the deduction available?
The deduction is spread over four years commencing when the grapevine is established. [subsections 387-305(2), (3)] Limit on deductions
The deduction is not available for any period when the grapevine is not:
- •
- owned by you; and/or
- •
- used by you in a primary production business. [subsection 387-305(2)]
If the grapevine is destroyed, you can deduct the balance of the capital expenditure less any amounts, such as insurance recoveries, received as a result of the destruction. [section 387-315]
You will be taken to own a grapevine if:
- •
- it is on land that you hold under a quasi-ownership right granted to you by a government agency; and
- •
- it was planted by you or a former holder of such a right. [section 387-320]
The recoupment provisions will apply. [Subdivision 20-A]
Mains electricity supply [Subdivision 387-E]
Subdivision 387-E will allow a deduction for expenditure on mains electricity connections to land on which businesses are carried on. [sections 387-350 and 387-370]
If you have an interest in land in Australia, or are a share farmer carrying on business on land in Australia, you can deduct capital expenditure on connecting power to land or upgrading the connection.
You or another person must intend to use the electricity in a business producing assessable income. [subsection 387-355(1)]
When is the deduction available?
Deductions are spread over 10 years. [subsection 387-355(2)]
What is connecting power to land or upgrading the connection?
Broadly, it is:
- •
- connecting mains electricity cable to the metering point;
- •
- installation of metering equipment;
- •
- installation of equipment for use in the supply of mains electricity to the metering point; and/or
- •
- work done to increase capacity. [section 387-360]
You have 12 months from when the resulting electricity is first supplied to begin to use the electricity in a business. [section 387-365]
If you have deducted an amount for expenditure on mains electricity supply neither you nor any other entity can deduct an amount under any other provision of the 1997 Act. [section 387-375]
Partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. [section 387-380]
The recoupment provisions will apply. [Subdivision 20-A]
Telephone lines [Subdivision 387-F]
Subdivision 387-F will allow a deduction for the cost of connecting telephone lines to land on which a primary production business is conducted. [section 387-400]
If you have an interest in land in Australia, or are sharefarming it, you can deduct capital expenditure on a telephone line on, or extending to, that land.
You or another entity must be carrying on primary production on the land when the expenditure is incurred. [subsection 387-405(1)]
When is the deduction available?
Deductions are spread over 10 years. [subsection 387-405(2)]
Broadly, a deduction for telephone lines is only available to the entity which incurred the cost of its initial installation. [sections 387-410, 387-415]
If you have deducted an amount for expenditure on a telephone line neither you nor any other entity can deduct an amount under any other provision of the 1997 Act. [section 387-415]
Partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. [section 387-420]
Forestry roads and timber mill buildings [Subdivision 387-G]
Subdivision 387-G will allow deductions for forestry roads and timber mill buildings. [section 387-450]
You can deduct an amount for capital expenditure on construction or acquisition of:
- •
- a forestry road used in a timber operation; and/or
- •
- a timber mill building used by you in carrying on a business of milling timber. [sections 387-460 and 387-465]
Your deduction in any income year is a portion of your total capital expenditure worked out by:
- •
- subtracting your previous deductions; and
- •
- dividing the result by the remaining life of the forestry road or timber mill building. [section 387-470]
This is the lesser of:
- •
- your estimate of how long the forestry road or timber mill building will be used for the purpose for which it was constructed or acquired; and
- •
- 25 years. [section 387-470]
Deductions are discontinued once you sell or stop using the forestry road or timber mill building or it is destroyed. A balancing adjustment is required if this happens. [sections 387-480, 387-485]
Limit on your capital expenditure on acquisition from another entity
Usually, if you acquire a forestry road or timber mill building from another entity, your capital expenditure will be the price you paid for it. In some circumstances it may be a lesser amount. [section 387-475]
No balancing adjustment is required if Common rule 1 (roll-over relief for related entities) applies. [Subdivision 41-A, subsection 387-505(1)]
Common rules 1, 2 and 3 will apply. [Division 41 and section 387-505]
B. Discussion of changes
Commissioners discretions to be replaced with objective tests
Objective tests will replace some administrative discretions.
To bring the rewritten law more in line with the self assessment system, the following discretions in the 1936 Act will be replaced by objective tests:
| Provisions | Subject | How replaced |
|---|---|---|
| 70A(1)(d) | Mains electricity supply | Replaced with an objective test. [subparagraph 387-355(1)(b)(ii)] |
| 75B(7) | Facilities to conserve or convey water | Replaced with a test of reasonableness. [section 387-135] |
| 75B(14) | Facilities to conserve or convey water | Replaced with a test of reasonableness. [sections 41-65 and 387-145] |
| 75D(7) | Landcare operations | Replaced with a test of reasonableness. [section 387-70] |
| 75D(9) | Landcare operations | Replaced with a test of reasonableness. [section 41-65 and subsection 387-65(2)] |
| 124F(4) | Forestry roads and timber mill buildings | Replaced with a test of reasonableness. [section 387-500] |
| 124G(4), 124JB(4) | Forestry roads and timber mill buildings | Replaced with a test of reasonableness. [section 387-490] |
| 124JE | Forestry roads and timber mill buildings | Replaced with a test of reasonableness. [section 41-65, subsection 387-505(2)] |
Consolidation of recoupment provisions
As explained, various provisions requiring recoupment of deductible expenditure have been standardised and consolidated. [Subdivision 20-A]
The consolidated recoupment provisions standardise and avoid repetition of provisions that apply to more than one deductible expense.
The provisions covered by this Division that are affected by this change are subsections 70A(8), 75AA(9), 75B(5) and 75D(9) of the 1936 Act.
Application of Division 41 Common rules
The Common rules will apply to this Division, as follows:
| Subdivision | Common Rule 1 | Common Rule 2 | Common Rule 3 |
|---|---|---|---|
| 387-A | Does not apply | Applies as modified by section 387-65 | Does not apply |
| 387-B | Does not apply | Applies as modified by section 387-145 | Does not apply |
| 387-D | Does not apply | Does not apply | Does not apply |
| 387-E | Does not apply | Does not apply | Does not apply |
| 387-F | Does not apply | Does not apply | Does not apply |
| 387-G | Applies without modification | Applies without modification | Applies without modification |
| [Section 387-505(1)] | Section 387-505(1) | [Section 387-505(2)] | [Section 387-505(3)] |
Common rules for capital allowances are a new feature of the rewritten law. Where it is appropriate to do so they standardise and avoid repetition of provisions that apply to more than one capital allowance.
Subdivision 387-A Landcare operations
Section 387-60 Definition of landcare operation.
The term landcare operation is defined in this section.
The existing law allows deductions for various operations that relate to preventing or fighting land degradation. In the rewritten law these operations are referred to collectively as landcare operations. Landcare is a widely used and understood term.
Section 387-65 No deduction for most plant
This section takes account of the rewrite of Section 54 of the 1936 Act and states clearly the existing rule that no deduction is allowable for plant other than some types of fences, dams and structural improvements.
Under the existing law the deduction for capital expenditure on landcare is not available for expenditure on plant or articles, except for:
- •
- fences erected for a purpose now described in paragraphs 387-60(1)(a) or (b); or
- •
- a dam or structural improvement (except a fence) now covered by paragraph (c), (d), (e) or (f) of the definition of plant in section 42-18.
Section 387-65 Adjustment: non-arm's length transactions
This section modifies the application of Common rule 2.
Common rule 2, as modified by this section, will apply to capital expenditure on landcare operations. It will apply where you acquire property and you pay an amount that is greater than the market value of the property. This is consistent with the existing law.
Subdivision 387-B Facilities to conserve or convey water
Section 387-130 Definition of water facility
The term water facility is defined in this section.
The term water facility has been defined to make clear what capital expenditure is deductible under Subdivision 387-B.
Section 387-145 Adjustment: non-arm's length transactions
This section modifies the application of Common rule 2.
Common rule 2, as modified by this section, will apply to capital expenditure on a water facility. It will apply where you acquire property and you pay an amount that is greater than the market value of the property. This is consistent with the existing law.
Subdivision 387-E Mains electricity supply
Section 387-360 Definition of connecting power to land or upgrading the connection
The term connecting power to land or upgrading the connection has been defined in this section.
Under the existing law it is not readily apparent that the deduction for mains electricity supply extends to expenditure on upgrading supply. The new definition makes this clear.
Subdivision 387-F Telephone lines
Subsection 387-410 (1) (b) No deduction for expenditure which qualifies for depreciation deductions
Clarifies the extent to which the telephone lines and depreciation provisions apply to the cost of a telephone line.
A drafting device in subsection 56(3) of the 1936 Act ensures that, to the extent that the cost of telephone lines could be depreciated under section 54 or deducted under section 70, the cost is to be depreciated. This has been omitted because its presentation is confusing. The same result has been achieved by making this aspect clear in this provision.
Subsections 387-410 (2) & (3) Deduction where the installer of the telephone line has claimed deductions
Allows a deduction for capital expenditure on a telephone line where a deduction for it has also been allowed to the entity which installed it for the taxpayer.
The existing law allows a deduction to the taxpayer who paid for the initial installation of a telephone line. The rewrite ensures that a deduction is still available to a taxpayer when a contracted installer has claimed deductions for their costs of installing the telephone line.
Subsection 387-410(2) applies when the installer has claimed a deduction for any amount relating to the telephone line. An example of this would be where the installer has claimed a deduction for the cost of cabling. The taxpayer who paid to have the telephone line installed will still be entitled to a deduction.
Subsection 387-410(3) applies similarly when the contracted installer has taken the cost of an item into account in working out a deduction under another provision of the Act. An example would be a depreciable machine used to lay the telephone line.
Subdivision 387-G Forestry roads and timber mill buildings
Section 387-460 Merging of deductions for expenditure on forestry roads and timber mill buildings
The provisions for forestry roads and timber mill buildings have been merged into one Subdivision.
The rewritten law merges two similar capital allowances which allow the write-off of capital expenditure on forestry roads and timber mill buildings. The only substantive difference between the existing subdivisions is their commencement dates and the merging has no practical impact.
Section 387-475 The write-off of previously deductible forestry roads or timber mill buildings
You will be able to write off a road or building on the basis of the price you paid for it, unless the Commissioner exercises a discretion to restrict your capital expenditure.
The existing law expressly limits your capital expenditure to the vendor's residual capital expenditure plus any balancing adjustment included in their assessable income. The Commissioner has a discretion to allow the road or building to be written off on the basis of your purchase price.
Under the rewritten law, if you acquire a forestry road or timber mill building from another taxpayer who was entitled to claim deductions for it, you will be able to calculate your deductions on the basis of the price you paid for it. The Commissioner will have an anti-avoidance discretion to reduce that purchase price.
In exercising the discretion, the Commissioner will take into account:
- •
- the relationship between the parties;
- •
- the market value of the road or mill building;
- •
- how the price paid was calculated; and
- •
- how the purchase was financed.
Section 387-500 Capital expenditure on re-use of a timber mill building
When a taxpayer resumes using a timber mill building after a period of non-use, deductions will be allowed on a reasonable basis.
Under the existing law, if you stop using a forestry road or timber mill building, a balancing adjustment is made. This has the effect of reducing the balance of your capital expenditure to nil. The existing law explicitly provides that, where you recommence use of a forestry road after a period of non-use, the Commissioner may determine an amount of capital expenditure on which deductions may be based. There is no equivalent provision for timber mill buildings.
This change aligns them.
Section 387-505 Application of Common rules
This section applies Common rules 1, 2 and 3 to this subdivision.
As explained earlier, there are 3 Common rules and they will all apply to capital expenditure on forestry roads and timber mill buildings.
C. Provisions of the old law that have not been rewritten
Some provisions of the existing law have not been included in the rewritten law because they are redundant or have no ongoing application. They are summarised in the following table:
| Provision | Subject | Reason for omission |
|---|---|---|
| subsections 70(1A), 70A(1A), 75AA(1A), 75B(1A), sections 124EA, 124JAA | Application of debt forgiveness provisions | Provisions are unnecessary. The debt forgiveness provisions apply without the need for these provisions. |
| paragraphs 70A(11)(c), (d) | Meaning of certain terms. | The provisions are drafting measures not needed in the rewritten provisions. |
| section 75A | Deduction for certain expenditure on land used for primary production incurred before 24/8/83. | It has no current or ongoing application. |
| subsection 75AA(10) | Assessment can be amended at any time to reduce deduction where expenditure recouped. | It is redundant in view of the recoupment provisions in Subdivision 20-A. |
| subsections 75B(2), (3) | Deduction for capital expenditure on conserving or conveying water incurred on or before 19/9/85. | It has no current or ongoing application. |
| subsection 75B(3C) | Pre 20/9/85 contracts for construction or installation. | It has no current or ongoing application. |
| subsection 75B(6) | Pre 14/4/80 contracts for construction or installation. | It has no current or ongoing application. |
| subsections 75B(11)-(13) | Pre 14/4/80 contracts for acquisition of plant or structural improvements | It has no current or ongoing application. |
| subsection 75B(15) | Meaning of certain terms. | It is unnecessary because of the definition of water facility. |
| subsection 75D(6) | Expenditure prior to 1/10/80 | It has no current or ongoing application. |
| subsections 75D(10)-(13) | Rearrangement of pre 1/10/80 contracts | It has no current or ongoing application. |
| subsection 124F(5) | Expenditure prior to 1/7/56 | It has no current or ongoing application. |
| subsection 124JA(4) | Expenditure prior to 1/7/63 | It has no current or ongoing application. |
D. Transitional arrangements
Part 1 of Schedule 11 to the Tax Law Improvement Bill 1997 will amend the Income Tax (Transitional Provisions) Act 1997 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.
Part 1 comprises only one item, which will insert in Chapter 3 of the Income Tax (Transitional Provisions) Act 1997 new Part 3-45, Division 387. Division 387 will set out how and when those rewritten sections will apply.
The rewritten provisions will apply to assessments for the 1997-98 or later income years. The transitional provisions allow capital expenditure not fully written off under the old law to be written off under the new provisions. [sections 387-50, 387-120, 387-300, 387-350, 387-400 and 387-450, Transitional Provisions Act]
In some cases, it is necessary to specify that the rewritten provisions apply to deductions claimed in the 1997-98 or later income years even though certain key events may have happened before that time.
Those events are explained in the following table:
| Transitional section | Subdivision | Purpose of provision |
|---|---|---|
| 387-80 | Subdivision 387-A | Treats a management plan that was approved before the commencement of Subdivision 387-A as also having effect under that subdivision, and a plan approved under Subdivision 387-A as also having effect under section 75D of the existing law. |
| 387-85 | Subdivision 387-A | Provides that approvals and authorities in force immediately before the commencement of Subdivision 387-A also have effect after that commencement, and that approvals and authorities under Subdivision 387-A are also effective for the purpose of applying section 75D of the existing law. |
| 387-140 | Subdivision 387-B | Ensures that, where the old law disallows a deduction to a taxpayer who acquires a water facility for which the previous owner could claim deductions, this is maintained in the rewritten law. |
| 387-315 | Subdivision 387-D | Ensures that capital expenditure on the establishment of a grapevine that has been deducted under the old law is taken into account in determining the deduction allowable on destruction of the grapevine. |
| 387-375 | Subdivision 387-E | Ensures that taxpayers can claim deductions to which they are entitled under the old law if they have not claimed them before the commencement of Subdivision 387-E. |
| 387-410 | Subdivision 387-F | Ensures that deductions for the balance of a taxpayer's capital expenditure on a telephone line incurred under the old law are available under Subdivision 387-F. |
| 387-415 | Subdivision 387-F | Ensures that taxpayers can claim deductions to which they are entitled under the old law if they have not claimed them before the commencement of Subdivision 387-F. |
| 387-470 | Subdivision 387-G | Treats a taxpayers residual capital expenditure on an access road used in a timber operation or a timber mill building under the old law as capital expenditure on a forestry road or timber mill building immediately after the commencement of Subdivision 387-G. |
| Where a taxpayer ceased tax deductible use of a forestry road or timber mill building before the commencement of Subdivision 387-G but recommences that use after it, the taxpayers capital expenditure under the rewritten law will be the same as under the old law. | ||
| 387-472 | Subdivision 387-G | Deductions a taxpayer claimed in prior years for forestry roads or timber mill buildings are taken into account in calculating deductions and balancing adjustments under the rewritten law. |
| 387-485 | Subdivision 387-G | Deals with situations where the prior owner of a forestry road or timber mill building was eligible for roll-over relief under the old law when the taxpayer acquired it from them. If the prior owner was eligible for relief, the balancing adjustment will have been postponed. This section ensures that the rewritten law takes account of the prior owner's capital expenditure and deductions by treating:
|
| 387-505 | Subdivision 387-G | Modifies Common rule 1 so that it takes into account:
|
| 387-507 | Subdivision 387-G | Where the forestry road or timber mill building was acquired before the 1997-98 income year, capital expenditure incurred under the old law will be counted in determining whether the test in the non-arm's length transaction rule is satisfied. |
E. Consequential amendments
Amendments of the Income Tax Assessment Act 1997
Part 2 of Schedule 11 will amend the 1997 Act to update references to provisions rewritten in Division 387.
Section 10-5 of the 1997 Act contains a list of all the provisions of both the 1936 and 1997 Acts that deal with particular kinds of income. Section 12-5 of the 1997 Act contains a similar table that deals with deductions. Part 2 of Schedule 11 will update references to provisions rewritten in Division 387. [Schedule 11, Part 2: items 2 to 11]
Section 40-30 of the 1997 Act contains a table of all the capital allowances. Part 2 of Schedule 11 will update references to existing provisions that have been rewritten in Division 387. [Schedule 11, Part 2: items 12 to 23]
Section 41-5 of the 1997 Act has a table of how the Common rules in Division 41 apply to various capital allowances. Part 2 of Schedule 11 also updates those references for provisions rewritten in Division 387. [Schedule 11, Part 2: items 24, 25]
Section 43-70 refers to items that are not included in construction expenditure. Part 2 of Schedule 11 updates references to the provisions as rewritten in Division 387. [Schedule 11, Part 2: item 26]
Section 995-1(1) of the 1997 Act contains tables for calculating the termination value and written down value of property for particular capital allowances. Part 2 of Schedule 11 updates the tables adding references to forestry roads and timber mill buildings. [Schedule 11, Part 2: items 32 and 36]
Part 2 of Schedule 11 will add to the Dictionary (section 995-1 of the 1997 Act) new definitions of terms used in the rewritten provisions in Division 387 and a definition of timber operation in the existing law which is inserted without change. [Schedule 11, Part 2: item 34]
Definitions that are new or changed are explained below.
New Definition : Approved management plan [Schedule 11, Part 2: item 27]
Commentary : Approved land management plan is defined in subsection 75D(14) of the 1936 Act. The definition incorporates the definitions of approved land management plan and land management plan in subsections 75D(14) and 75D(19) of the existing law.
New Definition : Connecting power to land or upgrading the connection [Schedule 11, Part 2: item 28]
Commentary : Under the existing law it is not readily apparent that the deduction for mains electricity supply extends to expenditure on upgrading supply. To indicate more clearly what expenditure is deductible the term connecting power to land or upgrading the connection has been defined.
New Definition : Forestry road [Schedule 11, Part 2: item 29]
Commentary : The term forestry road has been adopted to more clearly indicate what activity a road must be used for if expenditure is to be deductible.
New Definition : Landcare operation [Schedule 11, Part 2: item 30]
Commentary : The existing law allows deductions for various operations that relate to preventing or limiting land degradation. In the rewritten law these operations have been collectively referred to as landcare operations.
New Definition : Metering point [Schedule 11, Part 2: item 31]
Commentary : The deduction for connecting mains electricity supply is only available for connections to the point where consumption of electricity supplied to the land through a mains electricity cable is measured. The term metering point has been used in Subdivision 387-E to indicate this.
New Definition : Timber mill building [Schedule 11, Part 2: item 33]
Commentary : The existing law allows deductions for buildings used as part of timber milling businesses. The new term timber mill building, in subdivision 387-G, encapsulates this requirement.
New Definition : Water facility [Schedule 11, Part 2: item 35]
Commentary : The term water facility has been defined to make clear what capital expenditure is deductible under Subdivision 387-B.
The amendments made by Part 2 of Schedule 11 apply to assessments for the 1997-98 and later income years. [clause 4 Tax Law Improvement Bill] This ensures that consequential amendments take effect at the same time as substantive amendments relating to capital allowances for primary producers and land-holders.
Amendments of the Income Tax Assessment Act 1936
Part 3 of Schedule 11 will amend the 1936 Act to:
- •
- insert references to the rewritten provisions contained in Division 387 where the 1936 Act currently refers to the existing provisions; and
- •
- close off the application of provisions of the 1936 Act that have been rewritten in Division 387, so that the existing provisions apply only to the 1996-97 and earlier income years.
Inserting references to rewritten provisions
Part 3 of Schedule 11 will insert in the 1936 Act updated references to the rewritten provisions of Division 387. There are two categories of these amendments as discussed below.
The first will add a reference where a provision being consequentially amended:
- •
- has not yet been rewritten and closed off; and
- •
- can apply to amounts relating to more than one income year (including an income year earlier than 1997-98).
A reference to a rewritten provision will also be added in cases referring to a Division or Subdivision of the 1936 Act which is only partially rewritten. [Schedule 11, Part 2: items 45 to 50]
The second category will replace references to existing provisions in sections of the 1936 Act that:
- •
- have not yet been rewritten and closed off; and
- •
- apply to amounts that relate to only one income year at a time, being the 1997-98 or a later income year. [Schedule 11, Part 2: items 43, 51 to 57]
Closing off the application of existing provisions
Part 3 of Schedule 11 will insert new provisions into the 1936 Act to close off the application of existing provisions that have been rewritten or are redundant. [Schedule 11, Part 2: items 38 to 42, 44]
The existing provisions closed off will only apply to the 1996-97 and earlier income years. This complements the transitional provisions in Part 1 of Schedule 11 which ensure that the corresponding rewritten provisions apply to the 1997-98 and later income years.