Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Chapter 4 - Panel vans and utility trucks

Overview

4.1 Part 5 of Schedule 1 of the Bill amends the Income Tax Assessment Act 1936 (the Act) to ensure that panel vans and utility trucks that carry one tonne or more are treated in the same manner across in the tax law for depreciation, capital gains and related 'rollover' provisions irrespective of whether or not they are derived from passenger motor vehicles.

Summary of the amendments

Purpose of the amendments

4.2 The amendments propose to remove a tax disadvantage to locally produced 'one tonners' by ending inconsistent treatment of 'one tonners' in the tax law. These vehicles will no longer be treated differently depending on whether they are derived from passenger vehicles. This measure will allow these vehicles to qualify for accelerated depreciation rates rather than general rates. It also amends related capital gains and miscellaneous 'rollover' provisions to maintain consistency of the language. [Items 36-42]

Date of effect

4.3 The amendments will apply to assessments from the 1993-94 year of income. [Item 43]

Background of the legislation

4.4 This measure follows an amendment of the general investment and development allowance provisions by the Taxation Laws Amendment Act (No. 2) 1993 , which allowed panel vans and utility trucks to qualify for these allowances if designed to carry one tonne or more, irrespective of whether or not the vans or trucks are derivatives of motor cars. The relevant provision was subparagraph 82AF(2)(a)(i). It was amended by adding the phrase "other than panel vans or utility trucks designed to carry loads of one tonne or more". So the subparagraph now mentions some vehicles, 'one tonners', which are not covered by the subparagraph.

4.5 In some respects, panel vans and utility trucks designed to carry at least one tonne still are treated differently depending on whether they were derived from passenger motor vehicles or not. For example, the depreciation provisions apply less favourably to vehicles, such as the Ford Longreach, derived from passenger motor cars. In order to achieve a consistent treatment of 'one tonners', they will now be treated by the tax law provisions in the same manner.

4.6 At the same time the definition of 'asset' for capital gains purposes in section 160A was amended to reflect the changes to subparagraph 82AF(2)(a)(i). However, subsection 160MA(3) has not been changed. It still refers to the definition of asset in section 160A not including vehicles 'mentioned in' paragraph 82AF(2)(a), but not 'covered by' it as should be the case. Panel vans and utility trucks designed to carry one tonne or more, which are treated as assets for the purpose of section 160A, need not be specifically treated as if they were such assets for the purposes of subsection 160MA(3).

4.7 In several areas of the Act, 'rollover relief' is allowed to taxpayers when it is provided for under Part IIIA ('CGT rollover relief'). An example is section 58. For the purpose of the operation of this 'rollover relief' in relation to non CGT provisions, 'CGT rollover relief' is notionally extended to motor vehicles 'mentioned in' paragraph 82AF(2)(a). The practical effect of these provisions is to ignore the exclusion of certain motor vehicles from the definition of 'asset' in section 160A. 'One tonners' are not excluded from the definition of 'asset' in section 160A, and so need not to be specifically included. As a consequence of the earlier amendments to subparagraph 82AF(2)(a) and section 160A, the reference to 'mentioned in' in the 'rollover' provisions no longer mirrors the language used now in section 160A. Section 160A now refers only to vehicles 'covered by' subparagraph 82AF(2)(a). The amendment is necessary to maintain consistency of the language between these 'rollover' provisions and section 160A.

Explanation of the amendments

Depreciation

4.8 The Bill amends the definition of 'eligible motor vehicle' in subsection 55(9) to exclude from its scope panel vans and utility trucks that carry one tonne or more, even if they are derived from passenger motor vehicles. It amends paragraph 55(9)(a) of the definition by adding at its end a phrase "other than a panel van or utility truck designed to carry loads of one tonne or more". As a result, this class of vehicles ('one tonners') will qualify for accelerated depreciation rates under subsection 55(5) rather than general rates under subsection 55(6). The definition of an 'eligible motor vehicle' in paragraph 55(9)(a) will, therefore, mirror the language of paragraph 82AF(2)(a). [Item 36]

Capital gains and related 'rollover' provisions

4.9 The Bill changes the words 'mentioned in' to 'covered by' in the miscellaneous 'rollover' provisions, where CGT 'rollover' relief applies to motor vehicles. These provisions are as follow:

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subsection 58(8);

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subsection 73E(12);

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subsection 122JAA(23);

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subsection 122JG(13); and

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subsection 124AMAA(19).

4.10 The Bill also changes the words 'mentioned in' to 'covered by' in subsection 160MA(3).

4.11 Section 160A no longer excludes vehicles 'covered by' paragraph 82AF(2)(a), and the ones which will now be 'covered by' subsection 55(9). 'One tonners' continue to be mentioned in paragraph 82AF(2)(a), and will continue to be mentioned in subsection 55(9); they are mentioned so as to be excluded from being covered by these provisions. Thus panel vans and utility trucks designed to carry one tonne or more are already assets for the purpose of the capital gains provisions.

4.12 In order to maintain consistency of language between the above provisions and section 160A, and to enhance the conceptual clarity of these provisions, they are amended to reflect the changed language in section 160A. The provisions need expressly include only those vehicles which would not otherwise be assets for the purpose of capital gains tax 'rollover' relief. These amendments will ensure that they do this, consistently with the law. [Items 37-42]