Income Tax Assessment Amendment Act (No. 3) 1980

No. 58 of 1980

An Act to amend the law relating to income tax

[Assented to 23 May 1980]

BE IT ENACTED by the Queen, and the Senate and the House of Representatives of the Commonwealth of Australia, as follows:

Short title, &c.

1. (1) This Act may be cited as the Income Tax Assessment Amendment Act (No. 3) 1980.

(2) The Income Tax Assessment Act 1936 is in this Act referred to as the Principal Act.

Commencement

2. This Act shall come into operation on the day on which it receives the Royal Assent.

Depreciation

3. (1) Section 54 of the Principal Act is amended by adding at the end thereof the following sub-sections:

“(5) Subject to sub-section (6), depreciation of a unit of property is not an allowable deduction to a taxpayer in respect of any year of income if expenditure incurred by the taxpayer or another person in respect of the unit of property—

(a) has been allowed, or is allowable, as a deduction under section 75b from the assessable income of the taxpayer or that other person of any year of income; or

(b) would have been allowed, or would be allowable, as a deduction under that section from the assessable income of any year of income of the taxpayer or that other person but for sub-section (4) of that section.

“(6) Sub-section (5) does not operate to prevent depreciation being allowed to a taxpayer in respect of expenditure incurred in respect of a unit of property to the extent to which a deduction has not been allowed, and is not allowable, under section 75b (otherwise than by reason of the operation of subsection (4) of that section) to any taxpayer in respect of that expenditure.”.

(2) The amendment made by sub-section (1) applies to assessments in respect of income of the year of income in which 14 April 1980 occurred and in respect of income of all subsequent years of income.

Deduction of certain expenditure on land used for primary production

4. (1) Section 75a of the Principal Act is amended by omitting paragraphs (g) and (h) of sub-section (1) and substituting the following word and paragraph:

“or (g) preventing or combating soil erosion or flooding on the land.”.

(2) The amendment made by sub-section (1) applies in relation to expenditure incurred by a taxpayer on or after 14 April 1980 not being—

(a) expenditure incurred in pursuance of a contract entered into before that date; or

(b) expenditure incurred on—

(i) the construction or installation by the taxpayer of a structural improvement; or

(ii) the construction or installation of an extension to a structural improvement,

where that construction or installation by the taxpayer commenced before 14 April 1980.

5. After section 75a of the Principal Act the following section is inserted:

Deduction of expenditure on conserving or conveying water

“75b. (1) In this section—

‘construction’ includes manufacture;

‘extension’ includes an alteration or addition;

‘plant or a structural improvement’ includes a dam, earth tank, underground tank, concrete tank, metal tank, stand for a tank, bore, well, irrigation channel or similar improvement, pipe, pump, water tower and windmill.

“(2) Subject to this section, this section applies to expenditure of a capital nature incurred on or after 14 April 1980 by a taxpayer who carries on a business of primary production on land in Australia, being—

(a) expenditure incurred on the construction, acquisition or installation of plant or a structural improvement for the purpose of conserving or conveying water for use in carrying on that business on that land; or

(b) expenditure incurred on the construction, acquisition or installation of an extension to plant or to a structural improvement for the purpose of conserving or conveying water for use in carrying on that business on that land.

“(3) Subject to the succeeding provisions of this section, where a taxpayer incurs expenditure to which this section applies, the amount of that expenditure is an allowable deduction to the taxpayer in respect of the year of income in which the expenditure is incurred.

“(4) This section does not apply, and shall be deemed never to have applied, to expenditure incurred by a taxpayer where—

(a) the taxpayer is recouped, or becomes entitled to be recouped, in respect of the expenditure by the Commonwealth, by a State, by a Territory, by an authority constituted by or under a law of the Commonwealth, of a State or of a Territory, or by any other person; and

(b) the amount recouped or to be recouped is not, and will not be, included in the assessable income of the taxpayer of any year of income.

“(5) Where a taxpayer receives, or becomes entitled to receive, an amount that constitutes to an unspecified extent a recoupment of expenditure to which this section would, apart from sub-section (4), apply, the Commissioner may, for the purposes of sub-section (4), determine the extent to which the amount constitutes a recoupment of that expenditure.

“(6) This section does not apply, and shall be deemed never to have applied, in relation to a taxpayer, to—

(a) expenditure incurred in pursuance of a contract entered into by the taxpayer before 14 April 1980; or

(b) expenditure incurred on the construction or installation by the taxpayer of plant or a structural improvement or of an extension to plant or to a structural improvement where that construction or installation by the taxpayer commenced before 14 April 1980.

“(7) Where—

(a) apart from this sub-section, a deduction would be allowable to a taxpayer under this section in respect of expenditure incurred on the construction, acquisition or installation of plant or a structural improvement or of an extension to plant or to a structural improvement; and

(b) the plant or structural improvement or the extension, as the case may be, was not wholly for use in carrying on a business of primary production on land in Australia or was not wholly for use for the purpose of producing assessable income,

the amount of that deduction shall be reduced by such amount as, in the opinion of the Commissioner, is fair and reasonable.

“(8) A deduction is not allowable under this section to a taxpayer in respect of a year of income in relation to expenditure incurred by the taxpayer on the acquisition of plant or a structural improvement if, in relation to expenditure incurred by the taxpayer or another person on the construction of the plant or structural improvement or on a previous acquisition of the plant or structural improvement—

(a) a deduction has been allowed or is allowable under section 75 to the taxpayer or that other person in respect of any year of income or would have been so allowed or be so allowable but for sub-section (2) of that section;

(b) a deduction has been allowed or is allowable under section 75a to the taxpayer or that other person in respect of any year of income or would have been so allowed or be so allowable but for paragraph (b) of subsection (2) of that section; or

(c) a deduction has been allowed or is allowable under this section to the taxpayer or that other person in respect of any year of income or would have been so allowed or be so allowable but for sub-section (4) of this section.

“(9) A deduction is not allowable under this section to a taxpayer in respect of a year of income in relation to expenditure incurred by the taxpayer on the acquisition of an extension to plant or to a structural improvement if, in relation to expenditure incurred by the taxpayer or another person on the construction of the extension or on a previous acquisition of the extension—

“(10) This section does not apply in relation to the calculation of the net income of a partnership, or a partnership loss, in accordance with section 90, but, where a partnership has incurred expenditure to which this section would apply if the partnership were a taxpayer, then, for the purposes of the application of sub-section (3) in respect of a partner in the partnership, that partner shall be deemed to have incurred—

(a) so much of the amount of that expenditure as the partners have agreed is to be borne by that partner; or

(b) if the partners have not agreed as to the part of that amount that is to be borne by that partner—so much of that amount as bears to that amount the same proportion as the individual interest of the partner in the net income of the partnership of the year of income in which the relevant expenditure was incurred bears to that net income or, as the case requires, as the individual interest of the partner in the partnership loss for that year of income bears to that partnership loss.

“(11) Where the Commissioner is satisfied that—

(a) a contract or arrangement was entered into by a taxpayer before 14 April 1980 for the acquisition of plant or a structural improvement (in this sub-section referred to as the ‘original unit’);

(b) on or after that date—

(i) the taxpayer entered into a contract (whether with the same or another person) for the acquisition (whether with or without the acquisition of other property) of the original unit or of other plant or another structural improvement (in this sub-section referred to as the ‘substituted unit’) identical with, or having a purpose similar to that of, the original unit and intended by the taxpayer to be in lieu of the original unit; or

(ii) the taxpayer commenced the construction of other plant or another structural improvement (in this sub-section also referred to as the ‘substituted unit’) identical with, or having a purpose similar to that of, the original unit and intended by the taxpayer to be in lieu of the original unit; and

(c) the taxpayer entered into the contract for the acquisition of the original unit or substituted unit, or commenced the construction of the substituted unit, for the purpose, or for purposes that included the purpose, of obtaining a deduction under this section,

the Commissioner may refuse to allow a deduction under this section—

(d) in a case to which sub-paragraph (i) of paragraph (b) applies—in relation to the original unit or the substituted unit; or

(e) in a case to which sub-paragraph (ii) of paragraph (b) applies—in relation to the substituted unit.

“(12) Where the Commissioner is satisfied that—

(a) a taxpayer commenced construction of plant or a structural improvement (in this sub-section referred to as the ‘original unit’) before 14 April 1980;

(b) on or after that date—

(i) the taxpayer commenced the construction of other plant or another structural improvement (in this sub-section referred to as the ‘substituted unit’) identical with, or having a purpose similar to that of, the original unit and intended by the taxpayer to be in lieu of the original unit; or

(ii) the taxpayer entered into a contract for the acquisition (whether with or without the acquisition of other property) of the original unit or of other plant or another structural improvement (in this sub-section also referred to as the ‘substituted unit’) identical with, or having a purpose similar to that of, the original unit and intended by the taxpayer to be in lieu of the original unit; and

(c) the taxpayer commenced the construction of the substituted unit, or entered into the contract for the acquisition of the original unit or of the substituted unit, for the purpose, or for purposes that included the purpose, of obtaining a deduction under this section,

the Commissioner may refuse to allow a deduction under this section—

(d) in a case to which sub-paragraph (i) of paragraph (b) applies—in relation to the substituted unit; or

(e) in a case to which sub-paragraph (ii) of paragraph (b) applies—in relation to the original unit or the substituted unit.

“(13) In sub-sections (11) and (12), a reference to the acquisition by a taxpayer of plant or a structural improvement shall be read as including a reference to the construction of the plant or structural improvement for the taxpayer by another person or other persons.

“(14) Where—

(a) in a year of income, a taxpayer has incurred expenditure (in this subsection referred to as the ‘relevant expenditure’) on the construction, acquisition or installation of plant or a structural improvement;

(b) that expenditure is attributable, in whole or in part, to a transaction to which the taxpayer was a party;

(c) the Commissioner is satisfied that, having regard to any connection between any 2 or more of the parties to the transaction and to any other relevant circumstances, those parties were not dealing with each other at arm’s length in relation to the transaction; and

(d) the Commissioner is satisfied that the amount of the relevant expenditure is greater than the amount (in this sub-section referred to as the ‘arm’s length amount’) that would have been the amount of expenditure incurred by the taxpayer in that year of income in respect of the construction, acquisition or installation of that plant or structural improvement if the parties to the transaction had dealt with each other at arm’s length in relation to the transaction,

the arm’s length amount shall, for the purposes of this section, be deemed to be the amount of the expenditure incurred by the taxpayer in that year of income in respect of the construction, acquisition or installation of that plant or structural improvement.

“(15) A reference in sub-sections (11), (12), (13) and (14) to plant or a structural improvement shall be read as including a reference to—

(a) a portion of plant or a structural improvement; and

(b) an extension to plant or to a structural improvement.”.

Amendment of assessments

6. Section 170 of the Principal Act is amended by inserting in sub-section (10) “sub-section (4) of section 75b,” after “section 59,”.