House of Representatives

Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - Amendments to the New Business Tax System (Capital Allowances) Bill 2001

Outline of chapter

1.1 The New Business Tax System (Capital Allowances) Bill 2001 introduces a uniform capital allowance system. This system will consolidate within a single Division of the ITAA 1997 (Division 40) most of the different capital allowances in the current law.

Explanation of amendments

Amendment 1

1.2 This amendment will ensure that where a taxpayer acquires a copyright, a licence relating to a copyright, or an item of in-house software from a previous holder, the taxpayer must write it off over the periods stated in the statutory effective life table, applied as from the time they acquire the asset. The amendment ensures that, for example, a taxpayer receives a write-off where they have purchased the asset after the statutory period has elapsed for the previous holder.

Amendments 2, 3 and 6 to 9

1.3 The amendments ensure that in circumstances when a balancing adjustment event occurs and the taxpayer continues to hold the depreciating asset, the cost and adjustable value of that asset are reset to termination value. That is the value to which the balancing adjustment rules reconciled the adjustable value when the balancing adjustment event occurred. This will allow any further gain or loss to be recognised when the asset is subsequently disposed of, lost or destroyed. It will also ensure that any second element costs incurred after that balancing adjustment event occurs will be recognised.

Amendments 4 and 5

1.4 Together these amendments will clarify that the 25 year write-off period for a copyright, or a licence relating to a copyright, commences from when the taxpayer acquires the copyright or becomes the licensee. This is because the 25 year period applies only where it is shorter than the actual period until the copyright ends. The comparison with the actual period is made freshly for each acquirer, or licencee, of the copyright.

Amendments 10, 11 and 12

1.5 These technical amendments ensure that the balancing adjustment events apply as intended and that the termination value table terminology is consistent with those balancing adjustment provisions.

Amendments 13, 14 and 15

1.6 This change will allow STS taxpayers who are excluded from claiming capital allowances under the STS provisions for certain assets, to access the general low-value pool for those assets so long as they meet the relevant requirements to allocate the asset to the pool.

Correction to explanatory memorandum

1.7 Delete the following sentence from the date of effect in the general outline and financial impact of the explanatory memorandum to the Bill:

"The amendments may be applicable to a taxpayer before this date if they commence their 2001-2002 income year before 1 July 2001."

1.8 At the end of paragraph 1.110 of the explanatory memorandum to the Bill, add the following sentence.

"If the Commissioner later finds that the previous holder was using an incorrect effective life and amends the previous holders tax returns to reflect the use of a correct effective life, the effective life as reset by the Commissioner applicable to the previous holder will apply to the new holder."

1.9 After paragraph 3.111 of the explanatory memorandum to the Bill, add the following paragraph.

"Where the taxpayer begins to reuse the asset after a balancing adjustment event occurs in which they continue to hold the depreciating asset, they must continue to use the same method to work out the decline in value of their asset as they had used before the balancing adjustment event occurred. The taxpayer is however entitled to re-exercise their choice in determining the effective life of the asset."

1.10 At the end of paragraph 9.21 of the explanatory memorandum to the Bill, add the following sentence.

"If the Commissioner later finds that the previous holder was using an incorrect effective life and amends the previous holders tax returns to reflect the use of a correct effective life, the effective life as reset by the Commissioner applicable to the previous holder will apply to the new holder."