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Depreciation allowance on plant used to produce basic iron and steel

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NO. 194

Λ- ■' · O





As announced in the 1981-82 Budget Speech, the Government has decided to allow an accelerated write-off for income tax purposes of capital expenditure on plant and equipment used to produce basic iron and steel. The purpose of this statement is to provide details of the proposed arrangements.

Eligible plant will qualify for the accelerated rates of depreciation where it is acquired under a contract entered into after 18 August 1981 and before 1 July 1991 and is first used or installed ready for use by 30 June 1992. Eligible plant constructed by the taxpayer will qpalify on the same basis where construction commenced within

the 1981 to 1991 period.

The accelerated rates will apply only on a prime cost basis.

Eligible plant of a kind that now qualifies for depreciation at a prime cost rate of 20 per cent or less (including the special 18 per cent depreciation loading) will be depreciable at a 20 per cent prime cost rate. Plant in the category that is currently depreciable

at a prime cost rate in excess of 20 per cent will qualify for a 33 h, per cent rate.

Plant will be eligible for the accelerated rates if it is used in

the production of basic iron and steel products. For this purpose basic iron and steel products will generally be taken to be the products included in the definition used for the purposes of the recent IAC Report into the industry. Broadly, these products

include pig iron, ingots, blooms, billets and slabs, rerolling coils,



universal plates, rails, bars and rods (excluding bright bars),

■ angles and hot rolled strip, sheet and plate (unworked or simply

polished). Also included would be similar forms of low 'alloy

or high carbon steel. ‘ .

Plant used directly in production, including furnances, continuous

casting plant and hot rolling-mills used to form the basic iron and steel products, will be eligible for accelerated rates. So will

associated pollution control and quality control plant., maintenance plant and plant used to trim and pack the products to customer

requirements. Plant used in processes beyond production of basic iron and steel products, for example, cold reducing mills and tin plating and galvanising plant will not qualify. .

Plant used by the producer in certain associated processes will also qualify for the allowance if it is located within the basic iron and steel production premises of the producer. .

Eligible on this basis will be plant used in the preparation or production of raw materials and other inputs for use primarily and principally in the basic iron and steel production process.

Included under this heading would be such items as coke ovens, sinter, plant, lime kilns, materials blending plant and energy and gas production plant.

Also eligible on this basis will be plant related to materials storage and transport (including wharves but excluding road vehicles

of kinds ordinarily designed for the transport of persons or the delivery of goods) and plant used in the production of plant components such as rolls, moulds and stools and other specialist components necessary for the basic iron and steel production process Plant used within the premises in the training of apprentices in

skills relevant to the production process will similarly qualify.

To qualify for the accelerated rates the plant must be for use primarily and principally in connection with the production of basic iron and steel products or eligible associated processes of the kinds mentioned.



. The deductions will be available to the owner of the plant and will

apply where the plant is used by the owner or, in the case of leased'plant, by the lessee for qualifying purposes. Both new and second hand plant may qualify.

The ordinary income tax rules that apply to general depreciation

allowances will remain applicable to eligible plant. Depreciation allowances at accelerated rates will thus become available in the year in which the plant is first used, or installed ready for use and held in reserve. Proportionate allowances will apply where

these requirements are not satisfied until part way through the relevant year. Where applicable, the investment allowance or the special allowance for conversion of oil-fired plant will also be available. ,

Taxpayers will be entitled to elect to have normal rates of depreciation, including the 18 per cent loading, apply to individual plant items in lieu of the proposed accelerated rates. An election to this effect is to be made at the time of lodgment of

the income tax return in which depreciation is first claimed in respect of the plant. Once made, such an election will be irrevocable.


30 October 1981