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Treasury Laws Amendment (Supporting Australian Farmers) Bill 2018

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2016-2017-2018

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Treasury Laws Amendment (Supporting Australian Farmers) Bill 2018

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Josh Frydenberg MP)

 

 



Table of contents

Glossary............................................................................................................. 1

General outline and financial impact........................................................... 3

Chapter 1 ........... Fodder storage assets........................................................ 5

Chapter 2 ........... Statement of Compatibility with Human Rights............ 9

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ITAA 1997

Income Tax Assessment Act 1997

Bill

Treasury Laws Amendment (Supporting Australian Farmers) Bill 2018

 

 



Fodder storage assets

Schedule 1 to the Bill amends the ITAA 1997 to allow primary producers to immediately deduct (rather than depreciate over three years) the cost of fodder storage assets, such as silos and hay sheds, used to store grain and other animal feed.  This will assist primary producers by making it easier to invest in and stockpile fodder.

Date of effect :  T his measure applies to fodder storage assets first used or installed ready for use on or after 19 August 2018.

Proposal announced This measure was announced by the then Prime Minister, Deputy Prime Minister, Minister for Agriculture and Water Resources and then Minister for Regional Development, Territories and Local Government in Joint Media Release of 19 August 2018.

Financial impact The measure has the following fiscal impact ($m):

2018-19

2019-20

2020-21

2021-22

-

-40.0

-30.0

-5.0

Human rights implications :  This measure does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 2, paragraphs 2.1 to 2.4.

Compliance cost impact Low. Ongoing record keeping requirements will be reduced as capital allowances on assets are deducted over a shorter period.

 



Chapter 1          

Fodder storage assets

Outline of chapter

1.1                   Schedule 1 to the Bill amends the ITAA 1997 to allow primary producers to immediately deduct (rather than depreciate over three years) the cost of fodder storage assets, such as silos and hay sheds, used to store grain and other animal feed. This will assist primary producers by making it easier to invest in and stockpile fodder.

Context of amendments

1.2                   Schedule 1 contains amendments that give effect to one of several measures announced as part of the Government’s package of drought assistance measures which aid drought-affected farmers, increase economic activity in drought-affected communities, and provide farmers with the opportunity to better drought-proof their properties.

1.3                   Currently, amongst other things, Subdivision 40-F of the ITAA 1997 provides primary producers with an income tax deduction for capital expenditure they incur on the construction, manufacture, installation or acquisition of a fodder storage asset.

1.4                   Broadly, the primary producer is entitled to deduct:

•        if the asset was acquired after 7.30pm on 12 May 2015, one-third of the expenditure in the income year in which the expenditure was incurred, and one-third in each of the following two income years; or

•        if the asset was acquired before 7.30pm on 12 May 2015, an amount for the decline in value of the asset based on its cost and effective life.

1.5                   A primary producer’s expenditure on a fodder storage asset must have been incurred primarily and principally for use in a primary production business they conduct on land in Australia.

1.6                   If a taxpayer is not a primary producer or the asset is not used primarily and principally in a primary production business conducted on Australian land, the ordinary capital allowance (depreciation) rules will instead apply.

1.7                   A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder. A fodder storage asset can be a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to an asset or structural improvement, that is primarily and principally for the purpose of storing fodder.

1.8                   Fodder refers to food for livestock, such as grain, hay or silage. It can include liquid feed and supplements, or any feed that could fit into the ordinary meaning of fodder.

1.9                   Typical examples of fodder storage assets include: silos, liquid feed supplement storage tanks, bins for storing dried grain, hay sheds, grain storage sheds, and above-ground bunkers.

1.10               For a fodder storage asset to satisfy the ‘primarily and principally’ test, its main purpose must be to store fodder for the primary producer’s own livestock.

1.11               On 19 August 2018, the Government announced that it would provide farmers with the opportunity to better drought-proof their properties by, amongst other things, allowing primary producers to immediately deduct (rather than depreciate over three years) the cost of fodder storage assets.

Summary of new law

1.12               Schedule 1 to the Bill amends Subdivision 40-F of the ITAA 1997 so as to alter the calculation of the amount of the deduction for an income year that is available to primary producers in relation to capital expenditure incurred on fodder storage assets. The deduction for an income year is now equal to the capital expenditure incurred in that year, rather than the deduction being only one-third of the expenditure incurred in that year with the other two-thirds being available as equal deductions over the following two income years.

1.13               Schedule 1 does not alter any of the other elements of the capital allowances framework for primary producers, with the definitions, limits, conditions and eligibility criteria relating to fodder storage assets remaining unchanged.

Comparison of key features of new law and current law

New law

Current law

Primary producers may deduct capital expenditure on a fodder storage asset in the income year in which the expenditure is incurred.

Primary producers may deduct capital expenditure on a fodder storage asset over three income years.

Those primary producers that are small business entities may be able to choose to deduct certain capital expenditure over a shorter timeframe.

Detailed explanation of new law

1.14               Schedule 1 to the Bill repeals and replaces section 40-548 of the ITAA 1997 which sets out how a taxpayer works out the decline in value for a fodder storage asset. [Schedule 1, item 2, section 40-548 of the ITAA 1997]

Background

1.15               Under Australia’s income tax system, a taxpayer may deduct an amount equal to the decline in value of a depreciating asset (an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used) that a taxpayer holds for a taxable purpose (solely or as one of a number of purposes).

1.16               The decline in value is generally measured by reference to the effective life of an asset but may instead be calculated differently for different assets or different classes of taxpayer in certain circumstances.

1.17               A taxpayer may need to apportion the decline in value of a depreciating asset for an income year as a deduction is generally only available to the extent the asset is used for a taxable purpose.

1.18               Subdivision 40-F of the ITAA 1997 provides special rules for certain primary production depreciating assets, including fodder storage assets.  Access to the special rules is limited to primary producers using the asset primarily and principally in a primary production business conducted on land in Australia.  The special rules provide, amongst other things, an alternate way of calculating the decline in value of a fodder storage asset.

Changes to the how a primary producer works out the decline in value of a fodder storage asset

1.19               The amendments change how a taxpayer works out the decline in value for a fodder storage asset by specifying that the decline in value of a fodder storage asset for an income year is equal to the amount of capital expenditure incurred by the taxpayer on the construction, manufacture, installation or acquisition of the fodder storage asset in that year. [Schedule 1, item 2, section 40-548 of the ITAA 1997]

1.20               This change allows primary producers to immediately deduct (rather than depreciate over three years) the expenditure they incur on fodder storage assets that fall within the special capital allowance rules applying to primary production depreciating assets.

1.21               This change effectively aligns the timing of deductions for fodder storage assets under the capital allowance rules with the timing currently applying to fencing and water facilities.

1.22               A small consequential amendment has been made to a note in Subdivision 40-F to ensure it correctly refers to the sections where the decline in value of various primary production assets may be calculated. [Schedule 1, item 1, note 1 to subsection 40-515(1) of the ITAA 1997]

Application provisions

1.23               The amendments made by Schedule 1 apply to fodder storage assets first used or installed ready for use on or after 19 August 2018 (the date of announcement). [Schedule 1, item 3]



Chapter 2          

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Fodder storage assets

2.1                   Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.2                   Schedule 1 amends the ITAA 1997 to allow primary producers to immediately deduct (rather than depreciate over three years) the cost of fodder storage assets, such as silos and hay sheds, used to store grain and other animal feed.  This will assist primary producers by making it easier to invest in and stockpile fodder.

Human rights implications

2.3                   Schedule 1 does not engage any of the applicable rights or freedoms.

Conclusion

2.4                   Schedule 1 is compatible with human rights as it does not raise any human rights issues.