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Depreciation: property installed on crown leases



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NO. 147

acting TREASURER

PRESS RELEASE

DEPRECIATION: PROPERTY INSTALLED ON CROWN LEASES

The Government has decided to amend the income tax law to extend the circumstances under which deductions can be obtained for private sector expenditure on the construction of plant and other income-producing structures on Crown lands.

The changes are in response to representations that the existing measures are unduly restrictive and will not give full effect to "One Nation" initiatives designed to facilitate and encourage private sector investment in public infrastructure facilities such as power stations, land and sea transport facilities and water treatment facilities.

Such facilities are commonly constructed on Crown land.

One of those initiatives was to amend the plant depreciation provisions so that taxpayers installing plant on leased Crown land would generally be treated as owners of the plant for depreciation purposes and so entitled to deductions.

At the moment, Crown lease means a lease of land granted by the Crown under a statutory law of the Commonwealth, State or Territory.

It has become apparent that some infrastructure projects, such as power stations and water treatment plant, involve taxpayers installing plant on land over which they hold an interest which is not a Crown lease.

Part of those facilities will be constructed by taxpayers on land over which they hold a commercial lease granted by the relevant authority. Other parts, particularly water pipes and transmission lines, will be constructed on land over which the taxpayer holds an easement (or some other interest) in the land granted by the authority.

Neither the commercial lease nor the easement would constitute a Crown lease - the former is not a statutory lease and the other is not even a lease - and those taxpayers may be denied deductions for their expenditure on the facility on the basis that, once installed, they belong to the landowner.

Accordingly, the concept of Crown lease for depreciation purposes is to be extended in a number of ways. First, the concept will no longer be limited to leases and will extend to other interests in land such as easements, licences and "rights of way". Next, the requirement for these interests to be statutory is to be removed and ordinary

commercial interests in land granted by the Crown will now be covered.

Finally, it will be made certain that leases and other interests in land granted by tax-exempt government authorities are covered by the concept.

These amendments will apply from the same time as the existing measures; that is, to expenditure incurred after 26 February 1992 in installing plant on Crown leases. They also apply to expenditure incurred on or before that date, based on notional written down values on 27 February 1992. COMMONWEALTH

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A corresponding amendment is to be made to another One Nation initiative which allows the construction cost of income-producing structural improvements, such as toll bridges, roads and tunnels, to be evenly written-off as deductions over 40 years at the rate of 2.5% per annum.

Under the existing rules, deductions are available to owners or persons who construct eligible structures on land over which they hold a lease. In some instances, these structures may be constructed by taxpayers on land over which they hold some other form of interest; for example a "right of way".

To be consistent with the depreciation amendments described above, deductions are to be available to taxpayers who construct eligible structures on land over which they hold an easement, or other interest, in land granted by the Crown.

This amendment will apply from the same time as the existing measures; that is, where construction commenced after 26 February 1992.

Contact Officer: Damian Walsh Australian Taxation Office Telephone (06)2752247 (work) or 2491036 (home)

2 5 September 1992