New Business Tax System (Capital Allowances) Act 1999
No. 164, 1999
New Business Tax System (Capital Allowances) Act 1999
No. 164, 1999
An Act to implement the New Business Tax System by amending the law relating to taxation, and for related purposes
Contents
1............ Short title............................................................................................ 1
2............ Commencement.................................................................................. 2
3............ Schedule(s).......................................................................................... 2
Schedule 1—Full balancing adjustments on disposal of plant 3
Income Tax Assessment Act 1997 3
Schedule 2—Balancing adjustment offsetting 12
Income Tax Assessment Act 1997 12
Schedule 3—Accelerated depreciation 20
Income Tax Assessment Act 1997 20
Income Tax Assessment Act 1936 24
Schedule 4—IRUs and submarine cable systems 25
Income Tax Assessment Act 1997 25
Schedule 5—Working out new effective life 31
Income Tax Assessment Act 1997 31
Schedule 6—Consequential amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997 34
Income Tax Assessment Act 1997 34
New Business Tax System (Capital Allowances) Act 1999
No. 164, 1999
An Act to implement the New Business Tax System by amending the law relating to taxation, and for related purposes
[Assented to 10 December 1999]
The Parliament of Australia enacts:
1 Short title
This Act may be cited as the New Business Tax System (Capital Allowances) Act 1999.
2 Commencement
(1) Subject to this section, this Act commences on the day on which it receives the Royal Assent.
(2) Items 17 and 18 of Schedule 2 commence on the day on which the Taxation Laws Amendment Act (No. 5) 1999 receives the Royal Assent.
3 Schedule(s)
Subject to section 2, each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.
Schedule 1—Full balancing adjustments on disposal of plant
Income Tax Assessment Act 1997
1 Subsection 40‑25(5) (note)
Omit “Note”, substitute “Note 1”.
2 At the end of subsection 40‑25(5)
Add:
Note 2: In the case of plant that has been depreciated:
· a further amount is included in your assessable income if the termination value exceeds the written down value by more than the sum of your depreciation deductions; or
· you can deduct a further amount in some cases where the termination value is less than the plant’s undeducted cost.
A capital gain or loss from the plant is disregarded.
3 Section 42‑1
After “unit of plant.”, insert “It also provides for balancing adjustments on disposal of plant, even if you have not deducted an amount for depreciation.”.
4 Section 42‑5
Repeal the section, substitute:
42‑5 Key concepts used in this Division
5 Subsection 42‑30(1) (note 2)
Omit “an amount” (wherever occurring), substitute “one or more amounts”.
6 Subsection 42‑30(2)
After “Balancing adjustments”, insert “made because of subsection (1)”.
7 After subsection 42‑30(2)
Insert:
(2A) You must also make a balancing adjustment calculation for *plant if a *balancing adjustment event occurs, but subsection (1) does not apply.
Note 1: However, no balancing adjustment calculation is required if Common rule 1 applies to the balancing adjustment event or if any of the exceptions in section 42‑198 applies.
Note 2: A balancing adjustment calculation may include an amount in your assessable income or allow you to deduct an amount. If you are required to include an amount in your assessable income, balancing adjustment relief may be available: see sections 42‑285, 42‑290, 42‑293 and 42‑295.
(2B) Balancing adjustments made because of subsection (2A) are calculated under Subdivision 42‑GA.
(2C) Subsection (2A) and Subdivision 42‑GA apply to a unit of *plant that has not yet been fully completed or constructed, in the same way as they apply to a unit of plant that has, and the other provisions of this Act have effect accordingly.
8 Section 42‑180
Omit “an amount” (twice occurring), substitute “one or more amounts”.
9 Section 42‑182
Repeal the section, substitute:
42‑182 Diagram showing the application of this Division
10 After section 42‑190
Insert:
42‑192 Including a further amount in your assessable income
(1) If the *plant’s *termination value exceeds the total of:
(a) the plant’s *written down value; and
(b) the amount that section 42‑190 includes in your assessable income;
your assessable income also includes that excess.
For exceptions, see section 42‑198.
For balancing adjustment relief, see sections 42‑285, 42‑290, 42‑293 and 42‑295.
(2) However, the amount that subsection (1) includes in your assessable income is reduced if:
(a) you acquired the *plant at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; and
(b) the plant’s *cost base at the time of the *balancing adjustment event exceeds the total referred to in subsection (1).
The amount is reduced (but not below nil) by the excess of that cost base over that total.
Note: The main reasons why the cost base would exceed that total are:
· indexation of elements of the cost base (up to 30 September 1999);
· amounts being included in the cost base that are not part of the cost.
11 After section 42‑195
Insert:
42‑197 Deducting a further amount
If:
(a) you can deduct an amount under section 42‑195; and
(b) the plant’s *undeducted cost is less than its *reduced cost base;
you can also deduct the difference between the undeducted cost and the reduced cost base.
For exceptions, see section 42‑198.
42‑198 Exceptions to rules about including further amount in assessable income, or deducting further amount
CGT exemptions
(1) Section 42‑192, 42‑197, 42‑223 or 42‑224 or subsection 42‑390(2A) does not apply if a *capital gain or *capital loss from the *plant would be disregarded, because of a provision listed in the table in this subsection, if:
(a) you had made the gain or loss from *CGT event A1; and
(b) that CGT event had happened at the time of the *balancing adjustment event.
Plant to which this section does not apply
Item
Provision
Subject matter
1
section 118‑5
cars, motor cycles and valour decorations
2
section 108‑20 or 118‑10
collectables and personal use assets
3
section 118‑12
plant used to produce exempt income
(2) Section 42‑192, 42‑197, 42‑223 or 42‑224 or subsection 42‑390(2A) does not apply if the *plant was a *pre‑CGT asset at the time of the *balancing adjustment event.
Profit assessable under another provision
(3) Section 42‑192 or 42‑223 or subsection 42‑390(2A) does not apply if a provision of this Act (outside this Division) includes in your assessable income an amount in respect of a profit you make because of the *balancing adjustment event.
12 Before Subdivision 42‑G
Insert:
Subdivision 42‑GA—Calculation of balancing adjustments where there have been no deductions for depreciation
Guide to Subdivision 42‑GA
42‑221 What this Subdivision is about
This Subdivision explains how to calculate your balancing adjustment in some cases where a balancing adjustment event occurs for plant:
• for which you have deducted no depreciation; or
• that has not yet been fully completed or constructed.
Table of sections
Operative provisions
42‑222 When do you make a balancing adjustment calculation?
42‑223 Including an amount in your assessable income
42‑224 Deducting an amount
Operative provisions
42‑222 When do you make a balancing adjustment calculation?
You must make a balancing adjustment calculation for the income year in which a *balancing adjustment event occurs.
42‑223 Including an amount in your assessable income
(1) If the *plant’s *termination value exceeds its *cost, your assessable income includes that excess.
For exceptions, see section 42‑198.
For balancing adjustment relief, see sections 42‑285, 42‑290, 42‑293 and 42‑295.
(2) However, the amount that subsection (1) includes in your assessable income is reduced if:
(a) you acquired the *plant, or began to construct it, at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; and
(b) the plant’s *cost base at the time of the *balancing adjustment event exceeds the plant’s *cost.
The amount is reduced (but not below nil) by the excess of that cost base over that cost.
Note: The main reasons why the cost base would exceed cost are:
· indexation of elements of the cost base (up to 30 September 1999);
· amounts being included in the cost base that are not part of the cost.
42‑224 Deducting an amount
If the *plant’s *termination value is less than its *reduced cost base, you can deduct the difference.
For exceptions, see section 42‑198.
13 After subsection 42‑390(2)
Insert:
(2A) If the *termination value exceeds the *cost, your assessable income also includes that excess.
For exceptions, see section 42‑198.
For balancing adjustment relief, see sections 42‑285, 42‑290 and 42‑293.
(2B) However, the amount that subsection (2A) includes in your assessable income is reduced if:
(a) you acquired the *plant at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; and
(b) the plant’s *cost base at the time of the *balancing adjustment event exceeds its *cost.
The amount is reduced (but not below nil) by the excess of that cost base over that cost.
Note: The main reasons why the cost base would exceed the cost are:
· indexation of elements of the cost base (up to 30 September 1999);
· amounts being included in the cost base that are not part of the cost.
14 After section 118‑22
Insert:
118‑24 Plant
A *capital gain or *capital loss you make from a *CGT asset is disregarded if, at the time of the *CGT event, the asset is:
(a) your *plant; or
(b) if you are a partner, plant of the partnership; or
(c) if you are absolutely entitled to the asset as against the trustee of a trust (disregarding any legal disability), plant of the trustee.
15 Application of amendments
(1) The amendments made by items 1 to 13 apply to a balancing adjustment event happening after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
(2) The amendment made by item 14 applies to a CGT event happening after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
(3) The amendment made by item 14 also applies to a CGT event happening at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, if:
(a) the event is CGT event A1 (disposal of a CGT asset); and
(b) the time of the event is when you entered into the contract for the disposal of the CGT asset; and
(c) the change of ownership constituting the disposal occurred after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
Schedule 2—Balancing adjustment offsetting
Income Tax Assessment Act 1997
1 Subsection 42‑30(1) (note 2)
After “42‑290”, insert “, 42‑293”.
2 Paragraph 42‑50(2)(b)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
3 Paragraph 42‑90(2)(c)
Omit “or 42‑290 (later year relief)”, substitute “, 42‑290 (later year relief) or 42‑293 (involuntary disposals)”.
4 Paragraph 42‑165(3)(a)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
5 Subsection 42‑190(2) (note)
After “42‑290”, insert “, 42‑293”.
6 Subsection 42‑240(3) (note)
After “42‑290”, insert “, 42‑293”.
7 At the end of section 42‑285
Add:
(5) Unless subsection (6) applies to you, you can only make a choice under this section for a *balancing adjustment event that occurred at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
(6) However, you can make a choice under this section for any *balancing adjustment event if you are a *small business taxpayer for the income year in which the event occurred.
8 Paragraph 42‑290(2)(d)
After “42‑285”, insert “or 42‑293”.
9 At the end of section 42‑290
Add:
(4) Unless subsection (5) applies to you, you can only make a choice under this section for a *balancing adjustment event that occurred at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
(5) However, you can make a choice under this section for any *balancing adjustment event if you are a *small business taxpayer for the income year in which the event occurred.
10 After section 42‑290
Insert:
42‑293 Involuntary disposals
(1) You may exclude an amount that has been included in your assessable income for *plant (the original plant) as a result of a balancing adjustment calculation for a *balancing adjustment event that occurs after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, to the extent that you choose to treat that amount as an amount you have deducted for depreciation of an item or items of replacement plant.
(2) You can only make this choice if the balancing adjustment event is one of these:
(a) the original plant is compulsorily acquired by an *Australian government agency;
(b) the original plant is lost or destroyed;
(c) you dispose of the original plant to an Australian government agency after a notice was served on you by or on behalf of the agency:
(i) inviting you to negotiate with the agency with a view to the agency acquiring it by agreement; and
(ii) informing you that, if the negotiations are unsuccessful, it will be compulsorily acquired by the agency.
(3) You can only make this choice for replacement *plant if you incur the expenditure on the replacement plant, or you acquire it:
(a) no earlier than one year, or within a further period the Commissioner allows, before the *balancing adjustment event occurred; and
` (b) no later than one year, or within a further period the Commissioner allows, after the end of the income year in which the balancing adjustment event occurred.
(4) You can only make this choice for replacement *plant if:
(a) at the end of the income year in which you acquired it, you used it, or had it *installed ready for use, wholly for the *purpose of producing assessable income; and
(b) you can deduct an amount for depreciation of it; and
(c) you have not made a choice under section 42‑285 or 42‑290 for the *balancing adjustment event.
(5) The amount covered by the choice is taken to be an amount you have deducted for depreciation of the replacement *plant as at the first day of the income year in which you acquired it.
(6) If you are making the choice for 2 or more items of replacement *plant, you apportion the amount covered by the choice between those items in proportion to their *cost.
Note: Therefore, the amount must be taken into account for the plant under paragraph (a) of the definition of undeducted cost in section 42‑175. Also, because the amount is taken to have been deducted as at the first day of the income year, it will reduce the opening undeducted cost of the plant if you are using the diminishing value method.
11 Paragraph 42‑295(3)(e)
Omit “or 42‑290 (later year relief)”, substitute “, 42‑290 (later year relief) or 42‑293 (involuntary disposals)”.
12 Subsection 42‑390(2) (note)
Omit “and 42‑290”, substitute “, 42‑290 and 42‑293”.
13 Subsection 110‑45(2) (table item 2)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
14 Subparagraph 110‑55(3)(b)(i)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
15 Subparagraph 110‑60(1)(b)(i)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
16 Paragraph 123‑60(3)(a)
After “roll‑over”, insert “under this Division or the entity working out its *group turnover for the purposes of Subdivision 960‑Q”.
17 Subparagraph 240‑90(5)(a)(iii)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
18 Paragraph 243‑35(3)(b)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
19 Paragraph 387‑475(3)(c)
Omit “or 42‑290”, substitute “, 42‑290 or 42‑293”.
20 Paragraph 387‑475(3)(c)
Omit “both of”.
21 Section 960‑280 (link note)
Repeal the link note, substitute:
[The next Subdivision is Subdivision 960‑Q.]
22 After Subdivision 960‑M
Insert:
Subdivision 960‑Q—Small business taxpayers
Guide to Subdivision 960‑Q
960‑330 What this Subdivision is about
There are a number of provisions in this Act that provide exceptions or special rules for small business taxpayers.
This Subdivision specifies what a small business taxpayer is. It provides an average annual turnover test (excluding GST).
Table of sections
960‑335 Meaning of small business taxpayer
960‑340 Meaning of average turnover
960‑345 Meaning of group turnover
960‑350 Recalculating average turnover for opening years
960‑355 Winding up a business
[This is the end of the Guide.]
Operative provisions
960‑335 Meaning of small business taxpayer
You are a small business taxpayer for an income year if:
(a) you carry on a *business in that year; and
(b) either:
(i) your *average turnover for that year is less than $1,000,000; or
(ii) you choose to recalculate that turnover for an income year before the 2001‑02 income year under section 960‑350 and it is less than $1,000,000 as recalculated.
Note: You are treated as carrying on a business if you are winding up a business and you were previously a small business taxpayer: see section 960‑355.
960‑340 Meaning of average turnover
Your average turnover for an income year (the current year) is:
where:
number of averaging years is:
(a) 3; or
(b) if you did not carry on a *business in each of the current year and the 2 years before the current year, the number of those income years in which you carried on a business.
Note: You are treated as carrying on a business if you are winding up a business and you were previously a small business taxpayer: see section 960‑355.
sum of relevant group turnovers is the sum of:
(a) your *group turnover for the current year; and
(b) your group turnover (if any) for the 2 preceding income years.
960‑345 Meaning of group turnover
(1) The group turnover of an entity (the primary entity) for an income year is the sum of:
(a) the *value of the business supplies the primary entity made in the income year; and
(b) the value of the business supplies entities *connected with the primary entity made in the income year;
reduced by:
(c) that part of the value of the business supplies the primary entity made in the income year that is attributable to *supplies it made during the year to entities connected with it when they were connected with it; and
(d) that part of the value of the business supplies entities connected with the primary entity made in the income year that is attributable to supplies the connected entities made during the year to the primary entity when they were connected with it; and
(e) that part of the value of the business supplies another entity made in the income year that is attributable to supplies the other entity made to a third entity at a time when both the other entity and third entity were connected with the primary entity.
(2) The value of the business supplies an entity makes in an income year is the sum of:
(a) for *taxable supplies (if any) the entity made during the year in the ordinary course of carrying on a *business—the value (as defined by section 9‑75 of the *GST Act) of the *supplies; and
(b) for other supplies the entity made during the year in the ordinary course of carrying on a business—the prices (as defined by section 9‑75 of the GST Act) of the supplies.
960‑350 Recalculating average turnover for opening years
(1) You may choose to recalculate your *average turnover for an income year before the 2001‑02 income year (the calculation year) under this section if you would not be a *small business taxpayer for that year because your average turnover for that year is not less than $1,000,000.
(2) You make the recalculation in this way:
Method statement
Step 1. Ignore your *group turnover (if any) for each of the 2 income years preceding the calculation year.
Step 2. Make a reasonable estimate of your *group turnover for each of the 2 income years following the calculation year (ignoring either or both of those years if you do not expect to be carrying on a *business at any time in that year).
Step 3. Work out the average of your *group turnover for the calculation year and the estimates you made for the 2 following years (if any).
Step 4. If the amount from step 3 is less than $1,000,000, you are a small business taxpayer for the calculation year.
960‑355 Winding up a business
This Subdivision applies to you as if you carried on a *business in an income year if:
(a) in that year you were winding up a business you previously carried on; and
(b) you were a *small business taxpayer for the income year in which you stopped carrying on that business.
[The next Division is Division 975.]
23 Application of amendments
(1) The amendments made by this Schedule (other than by items 17 and 18) apply to assessments for the income year in which 21 September 1999 occurred and later income years.
(2) The amendment made by item 17 applies to arrangements entered into after 27 February 1998.
(3) The amendment made by item 18 applies to debts that are terminated after 27 February 1998.
Schedule 3—Accelerated depreciation
Income Tax Assessment Act 1997
1 Subsection 42‑25(2)
Repeal the subsection.
2 Before section 42‑120
Insert:
42‑118 Rates not to apply to plant acquired after 21 September 1999
(1) The rates set out in this Subdivision do not apply to *plant if:
(a) you became its owner or *quasi‑owner under a contract entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) you constructed it and the construction started after that time; or
(c) you acquired it in some other way after that time.
Note: Instead, a rate worked out using the effective life of plant is used: see subsections 42‑160(3) and 42‑165(2A).
(2) However, those rates continue to apply to that *plant if the conditions set out in Subdivision 42‑K are met.
Note: That Subdivision deals with certain small business taxpayers.
3 Section 42‑130
Repeal the section.
4 At the end of section 42‑160
Add:
(2) Subsection (1) does not apply to *plant if:
(a) you became its owner or *quasi‑owner under a contract entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) you constructed it and the construction started after that time; or
(c) you acquired it in some other way after that time;
unless the conditions set out in Subdivision 42‑K are met.
Note: That Subdivision deals with certain small business taxpayers.
(3) Instead, you use this formula:
5 Subsection 42‑165(2)
Repeal the subsection, substitute:
(2) Subsection (1) does not apply to *plant if:
(a) you became its owner or *quasi‑owner under a contract entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) you constructed it and the construction started after that time; or
(c) you acquired it in some other way after that time;
unless the conditions set out in Subdivision 42‑K are met.
Note: That Subdivision deals with certain small business taxpayers.
(2A) Instead, you use this formula:
6 After section 42‑165
Insert:
42‑167 Low cost plant
Despite sections 42‑160 and 42‑165, your deduction is the *plant’s *cost for the income year in which you become its owner or *quasi‑owner if that cost does not exceed $300.
7 Subparagraphs 42‑175(1)(b)(ii) and (c)(ii)
Omit “the same rate and method”, substitute “the same calculation formula”.
8 At the end of section 42‑280
Add:
Acquisition time
(6) If the transferor:
(a) became the *plant’s owner or *quasi‑owner under a contract entered into at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) constructed it and the construction started at or before that time; or
(c) acquired it in some other way at or before that time;
the transferee is taken to have become the plant’s owner or quasi‑owner before that time.
9 After Subdivision 42‑J
Insert:
Subdivision 42‑K—Rules for small business taxpayers
Guide to Subdivision 42‑K
42‑340 What this Subdivision is about
This Subdivision sets out the conditions that small business taxpayers must comply with in order to obtain access to accelerated rates of depreciation.
42‑345 Conditions for small business taxpayers retaining accelerated depreciation
(1) An entity that:
(a) became the owner or *quasi‑owner of *plant under a contract entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) constructed it and the construction started after that time; or
(c) acquired it in some other way after that time;
can use the rates set out in Subdivision 42‑D, and the calculation formula in subsection 42‑160(1) or 42‑165(1), if the conditions set out in this table are satisfied:
Conditions for small business taxpayers retaining accelerated depreciation
Item
Condition
1
The entity must have been a *small business taxpayer for the income year (the start year) that includes the time when the entity first used the *plant, or first had it *installed ready for use.
2
At that time, at least 50% of the entity’s intended use of the *plant must be in carrying on a *business for the *purpose of producing assessable income.
3
At that time, neither of these applies:
(a) it could reasonably be expected that, because of the plant’s use, whether in connection with another asset or not, the entity would not be a *small business taxpayer for the income year following the start year or for either of the next 2 income years;
(b) the plant is being or is intended to be let predominantly on a *plant lease.
(2) A plant lease of *plant is an agreement (including a renewal of an agreement) under which the owner or *quasi‑owner of the plant grants a right to use the plant to another entity. However, a plant lease does not include a *hire purchase agreement or a *short‑term hire agreement.
(3) A short‑term hire agreement is an agreement for the intermittent hire of an asset on an hourly, daily, weekly or monthly basis.
(4) However, an agreement for the hire of an asset is not a short‑term hire agreement if, having regard to any other agreements for the hire of the same asset to the same entity or an *associate of that entity, there is a substantial continuity of hiring so that the agreements together are for longer than a short‑term basis.
(5) For the purposes of item 2 in the table in subsection (1), an entity is treated as if it is not carrying on a *business in relation to the activities of a partnership in which the entity is a partner unless the entity is *connected with the partnership.
10 Subsection 46‑35(2)
Repeal the subsection, substitute:
(2) However, section 42‑167 does not apply.
Note: Section 42‑167 allows you to deduct the full cost of a unit of plant if its cost does not exceed $300.
Income Tax Assessment Act 1936
11 At the end of paragraph 82AM(3)(b)
Add “, or the taxpayer could calculate their deduction under section 42‑167 of that Act”.
12 At the end of paragraph 632(3)(b)
Add “, or the taxpayer could calculate their deduction under section 42‑167 of that Act”.
13 At the end of paragraph 642(3)(b)
Add “, or the taxpayer could calculate their deduction under section 42‑167 of that Act”.
14 Application of amendments
The amendments made by this Schedule apply to plant if:
(a) you became its owner or quasi‑owner under a contract entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) you constructed it and the construction started after that time; or
(c) you acquired it in some other way after that time.
Schedule 4—IRUs and submarine cable systems
Income Tax Assessment Act 1997
1 Section 12‑5 (after table item headed “investment company”)
Insert:
IRUs
see depreciation
2 Subsection 20‑30(1) (after table item 1.7C)
Insert:
1.7D
Division 42 (as it applies to *IRUs because of Division 44)
Expenditure on IRUs
3 Section 40‑30 (before the table item dealing with landcare operations)
Insert:
IRUs
Capital expenditure on IRUs
Entity incurring expenditure
Effective life of cable
Balancing adjustment required on full disposal. Special rules for partial disposal
Division 44
4 Section 41‑5 (before the table item dealing with landcare operations)
Insert:
IRUs
Applies as modified by section 44‑35
Applies without modification
Does not apply
5 Subsection 41‑23(1)
Omit “Note”, substitute “Note 1”.
6 At the end of subsection 41‑23(1)
Add:
Note 2: You cannot elect for roll‑over relief for an IRU: see section 44‑40.
7 At the end of section 42‑55
Add:
IRUs
(9) Division 44 has special rules about depreciation of IRUs.
8 Subsection 42‑335(3) (note)
Omit “Note”, substitute “Note 1”.
9 At the end of subsection 42‑335(3)
Add:
Note 2: You cannot elect for roll‑over relief for an IRU: see section 44‑40.
10 Section 43‑260 (link note)
Repeal the link note.
11 After Division 43
Insert:
Division 44—IRUs and submarine cable systems
Guide to Division 44
44‑1 What this Division is about
This Division allows you to deduct expenditure you incur on acquiring an indefeasible right to use an international telecommunications submarine cable system (an IRU) as if it were plant.
It modifies some of the depreciation provisions for IRUs.
It also provides special rules for part disposals of IRUs and submarine cable systems.
Table of sections
44‑5 Depreciating IRUs
44‑10 When you start deducting for an IRU
44‑15 Rate
44‑20 Part disposals
44‑25 Calculating later depreciation deductions
44‑30 Application of part disposal rules to cables
44‑35 Acquiring additional capacity
44‑40 Application of Division 41 Common rules
[This is the end of the Guide.]
Operative provisions
44‑5 Depreciating IRUs
(1) The provisions of this Part and Parts 3‑1 and 3‑3 apply to *IRUs as if they were units of *plant that you own, but with the modifications set out in this Division.
Note: If an amount of expenditure on IRUs is recouped, the amount may be included in your assessable income: see Subdivision 20‑A.
(2) An IRU is an indefeasible right to use an international telecommunications submarine cable system.
(3) To avoid doubt, the treatment of *IRUs as if they were units of *plant is not intended to affect the nature of expenditure on IRUs for the purposes of provisions of this Act outside this Part and Parts 3‑1 and 3‑3.
44‑10 When you start deducting for an IRU
You can start to deduct an amount for depreciation of an *IRU for the income year in which you first use it for the *purpose of producing assessable income.
44‑15 Rate
(1) The rate you use depends on whether you use the *diminishing value method or the *prime cost method.
Rate using the diminishing value method
(2) Your rate using the *diminishing value method is:
where:
cable’s effective life is the period, in years, that you work out, under Division 42, to be the *effective life of the international telecommunications submarine cable over which the IRU has been granted.
Rate using the prime cost method
(3) Your rate using the *prime cost method is:
44‑20 Part disposals
(1) This section and section 44‑25 apply to you if you own an *IRU (the original plant) and you dispose of part of it.
(2) This Part applies to you as if, just before the disposal happened, you had split the original plant into 2 items of *plant:
(a) the part you stopped owning; and
(b) the part you continue to own (your new plant).
(3) You are taken to have disposed of an asset (the part you stopped owning) and to have acquired your new plant at the time of the disposal.
(4) The *written down value of the part you stopped owning is that part of the written down value of the original plant just before it was split as is reasonably attributable to the part you stopped owning. The *cost, and the first element of the *cost base, of that part are worked out similarly.
Note: You must make a balancing adjustment calculation under Subdivision 42‑F for the asset representing the part you stopped owning.
(5) Subdivision 42‑J does not apply to the disposal mentioned in paragraph (1)(a).
44‑25 Calculating later depreciation deductions
(1) You must work out the *undeducted cost of the original plant just before it was split and apportion that amount on a reasonable basis between each of the assets into which it was split.
(2) You can deduct amounts for depreciation of your new plant for the remainder of the income year in which the event happened and for later years. The part of the *undeducted cost you apportioned to your new plant under subsection (1) is its *cost.
(3) If you were using the *diminishing value method, you must continue to do so. If you were using the *prime cost method, you must continue to do so.
(4) You must also adjust the rate if you are using the *prime cost rate.
(5) You work out the rate adjustment in this way:
where:
remaining effective life is the cable’s remaining *effective life, in years (including the income year in which the disposal occurred).
44‑30 Application of part disposal rules to cables
(1) Sections 44‑20 and 44‑25 apply also to the granting of an *IRU over an international telecommunications submarine cable system in the same way that they apply to the part disposal of an IRU.
(2) For the cable system:
(a) the granting of the *IRU is a part disposal of the system; and
(b) the cable system before you granted the IRU is the original plant; and
(c) the residue of the cable system after you granted the IRU is the new plant; and
(d) the part you stop owning is the part of the cable system applicable to the IRU you granted.
44‑35 Acquiring additional capacity
(1) If, after you start to use an *IRU for the *purpose of producing assessable income, you pay an amount that increases the capacity of the IRU, you add that amount to the IRU’s *cost and to its opening undeducted cost for the income year in which you paid the amount.
(2) You must also adjust the rate if you are using the *prime cost rate. Use subsection 44‑25(5) to make the adjustment.
44‑40 Application of Division 41 Common rules
(1) Common rules 1 (roll‑over relief for related entities) and 2 (non‑arm’s length transactions) apply to this Division.
(2) However, the transferor and transferee cannot jointly elect for roll‑over relief under subsection 42‑335(3).
12 Application of amendments
(1) The amendments made by this Schedule relating to IRUs apply to expenditure on IRUs incurred after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
(2) The amendments made by this Schedule relating to part disposals of a cable system apply to the granting of IRUs over the system under contracts entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
(3) Those amendments do not apply to an international telecommunications submarine cable system, or an IRU over the system, if the system had been used for telecommunications purposes at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.
Schedule 5—Working out new effective life
Income Tax Assessment Act 1997
1 Paragraph 42‑105(2)(a)
Repeal the paragraph.
2 Subsection 42‑105(3)
Omit “This conclusion is also to be made on the assumption that the plant is new.”.
3 After section 42‑110
Insert:
42‑112 Working out new effective life
(1) You can choose to work out a new *effective life of *plant if, after the end of the first income year for which you can deduct an amount for depreciation of the plant, you conclude that the effective life you have been using is no longer accurate because of changed circumstances.
Note 1: This means that the choice is not available for working out notional depreciation deductions for a transition entity under Division 58.
Note 2: However, a transition entity can make the choice for an income year after the one in which depreciation deductions first become available to it for the plant: see subsection 58‑85(3A).
(2) The new effective life starts to apply for the income year for which you make the choice.
(3) However, you cannot do so if a rate under Subdivision 42‑D, and the calculation formula in subsection 42‑160(1) or 42‑165(1), applies to depreciation of the *plant.
Note: Those rates and calculation formulas can apply to small business taxpayers who satisfy certain conditions.
(4) Some examples of changes in circumstances that may result in your working out a new effective life are:
(a) your use of the *plant turns out to be more or less rigorous than you expected (or was anticipated by the Commissioner’s determination);
(b) there is a downturn in demand for the goods or services the plant is used to produce that will result in the plant being scrapped;
(c) legislation prevents the plant’s continued use;
(d) changes in technology make the plant redundant.
(5) You must work out how long (in years) the *plant can be used by any entity for income producing purposes as from the start of the income year for which you make the choice:
(a) having regard to the wear and tear on the plant that will result from your expected circumstances of use; and
(b) assuming that it will be maintained in reasonably good order and condition; and
(c) having regard to when you would be likely to scrap the plant, sell it for scrap or abandon it.
That period is the new *effective life of the plant.
(6) You will need to work out your depreciation deductions under subsection 42‑160(3) or 42‑165(2A) using the plant’s *effective life worked out under subsection (5) of this section, in years (including the income year for which the choice is made).
(7) If you are using the *prime cost rate, you use the *plant’s *undeducted cost as at the start of the income year for which the choice is made as its *cost for the purposes of calculating your depreciation deductions.
(8) This section applies despite the rule in section 42‑40 about choices.
4 At the end of section 42‑175
Add:
(3) However, subparagraphs (1)(b)(ii) and (1)(c)(ii) apply differently if you have chosen to work out a new *effective life for the *plant under section 42‑112.
(4) You work out the amount applicable under that subparagraph before the income year (the start year) in which the new *effective life started to apply, and add to that amount the amounts worked out under that subparagraph for the start year and later income years as if the start year were the first one for which a depreciation deduction were allowable to you for the plant.
5 After subsection 58‑85(3)
Insert:
(3A) Despite subsection (3), the *transition entity can work out a new *effective life for the unit under section 42‑112 for an income year after the *transition year. It would then use the formula in subsection 42‑160(3) or 42‑165(2A) in calculating its deductions for depreciation of the unit.
6 Application of amendments
The amendments made by this Schedule apply to plant if:
(a) you became its owner or quasi‑owner under a contract entered into after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or
(b) you constructed it and the construction started after that time; or
(c) you acquired it in some other way after that time.
Schedule 6—Consequential amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997
Income Tax Assessment Act 1997
1 Subsection 995‑1(1)
Insert:
average turnover has the meaning given by section 960‑340.
2 Subsection 995‑1(1)
Insert:
group turnover has the meaning given by section 960‑345.
3 Subsection 995‑1(1)
Insert:
IRU has the meaning given by section 44‑5.
4 Subsection 995‑1(1)
Insert:
plant lease has the meaning given by section 42‑345.
5 Subsection 995‑1(1)
Insert:
short‑term hire agreement has the meaning given by section 42‑345.
6 Subsection 995‑1(1)
Insert:
small business taxpayer has the meaning given by sections 960‑335 and 960‑350.
7 Subsection 995‑1(1)
Insert:
taxable supply has the meaning given by the *GST Act.
8 Subsection 995‑1(1)
Insert:
value of the business supplies of an entity has the meaning given by section 960‑345.
[Minister’s second reading speech made in—
House of Representatives on 21 October 1999
Senate on 26 November 1999]
(203/99)
