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Tuesday, 27 November 1973
Page: 3969


Mr Street (CORANGAMITE, VICTORIA) asked the Treasurer, upon notice:

(1)   What depreciation rates applied to the following items before the Budget introduced on 21 August 1973, and what rates are the current rates: land clearing, dams, earth tanks, silos and haysheds for on-farm fodder storage, woolsheds, other sheds, underground tanks, fences, piping for stock watering, shearing machines, galvanised iron tanks, concrete tanks, agricultural implements, trucks and tractors.

(2)   What will be the gain to revenue by alteration of each of these rates of depreciation.


Mr Crean - The answer to the honourable member's question is as follows:

PRESENT LAW

(1)   In terms of the existing income tax law, the deductibility of capital expenditure incurred by primary producers may be summarised as follows:

A.   Deductiblein year ofincurrence

Specific capital expenditures incurred by primary producers are deductible in full in the year they are incurred. Of the items mentioned in the honourable member's question, the cost of land clearing, dams, earth tanks, silos and haysheds for on-farm fodder storage, underground tanks, certain special-purpose fencing and piping for stock watering would generally be eligible for this outright deduction.

B.   Deductible over a 5-year period

Primary production plant and structural improvements (other than structures to which the outright deduction applies) are, generally speaking, depreciated at 20 per cent per annum for taxation purposes. This means that the cost of such items is fully written off over 5 years.

Of the items mentioned in the honourable member's question, woolsheds, other sheds, certain fencing, shearing machines, galvanised iron tanks, agricultural implements, trucks and tractors would normally be subject to the special 20 per cent depreciation Tate.

C.   Deductible at general depreciation rates over the effective life of the asset

The capital cost of plant, equipment or structural improvements subject to depreciation that is not deductible either as an outright deduction in the year it is incurred or in 5 equal annual instalments, is deductible by way of annual depreciation allowances over the estimated life of the particular item. The rate of depreciation applied depends on the estimated life of the item and on whether the taxpayer chooses the prime cost or diminishing value method for taxation depreciation purposes.

The ordinary rates of depreciation for items subject to depreciation that are referred to in the honourable member's question are set out below. As already mentioned, these rates are presently applied only where neither the special outright deduction nor the accelerated depreciation rate of 20 per cent per annum is available.

 

PROPOSED AMENDMENTS

Under the amendments proposed in the Budget

Speech, deductions for the cost of primary production plant, equipment and depreciable structural improvements will, in future, be based on general rates of depreciation as in the above examples.

Capital expenditures that do not give rise to a depreciable item but which were previously covered by the outright deduction concession will be deductible to primary producers over 10 years by way of equal annual instalments. Land clearing, earth tanks and underground tanks will be in this category.

The proposed amendments will not affect expenditures incurred before 22 August 1973 or incurred after that date under pre-existing contracts made with the suppliers of materials or labour. Nor will the amendments apply to ordinary recurring business expenditures that are not of a capital nature (e.g. seasonal ploughing or seeding of pastures, or expenditure on work necessary to maintain cleared pastures free of weeds etc.) which will continue, as at present, to be deductible in full in the year they are incurred.

(2)   Statistics of depreciation allowed and other deductions for each of the items mentioned in part (1) are not available. It is not possible, therefore, to provide a satisfactory estimate of the gain to revenue that would result from the proposed change in the tax treatment of these classes of expenditure. A measure of the total revenue involved is provided in Statement No. S attached to the 1973-74 Budget Speech. In the table at page 85 the estimated increase in receipts through the proposed change in the rates of depreciation allowable to primary producers and the replacement of immediate deductions for certain capital expenditure by depreciation allowances is put at $27m. However, as indicated in footnote (f) the existing provisions do not allow any greater total deduction over the life of the assets than do the depreciation rates proposed, but they result in a deferment of tax which involves a cost to the budget and a benefit to the taxpayer in the form of interestfree finance.







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