Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

We are dealing with the Tax Laws Amendment (2007 Measures No. 2) Bill 2007. Labor supports this bill. I will run through some of the provisions in the legislation. Schedule 1 deals with the effective life provisions of mining rights. Under the uniform capital allowance provisions, taxpayers can deduct the decline in value of depreciating assets used for income-producing purposes. The decline in value is worked by using the effective life of the asset which resembles the period over which any taxpayer uses the asset. The general depreciation rules do not apply to certain intangible assets listed in the 1997 act. Instead, the uniform capital allowance rules prescribe statutory effective lives for these intangible assets. A statutory effective life means that the legislation stipulates the effective life of these assets. Taxpayers cannot self-assess and the commissioner does not set the effective life of these assets.

Mining rights were included in this list in the 1997 act by the Taxation Laws Amendment Act (No. 4) 2003 and linked the effective life of a mining right to the life of the relevant mine, petroleum field or quarry. An unintended consequence of including mining rights in this list has been that some taxpayers using the diminishing value method for working out the decline in the value of their mining right have wrongly believed that the effective life was based on the whole rather than the remaining life of a mine to which the mining right relates. Further, holders of mining rights wrongly believed that they had to assess the life of the right annually. This results in outcomes that are inconsistent with other depreciating assets under the uniform capital allowance regime, which was not the intended outcome of TLAB4 of 2003.

The amendments in schedule 1 of the bill clarify the treatment of mining rights by removing mining rights from the table in section 40-95(7), listing intangible assets with statutory effective lives and, secondly, inserting new sections, 40-95(10) and 40-95(11), to work out the effective life of mining rights separately from other assets. These amendments clarify the law so that it reflects the original policy intent. The changes mean that a taxpayer requiring a mining right from a prior holder will be able to estimate the remaining, rather than the whole, life of the existing or proposed mine to which the right relates, as with other assets. The amendments provide that taxpayers work out the effective life of their mining right themselves by estimating the period until the end of the life of the mine, quarry or petroleum field. Taxpayers holding mining rights will have the choice of using either the prime cost or diminishing value method in calculating the decline in value, as with other assets. Once the life of the mine has been estimated, there will be no requirement for a yearly or periodic re-estimation of the effective life of the mining right. However, a taxpayer can reassess the effective life if the original estimate is no longer accurate.

The amendments apply from 1 July 2001. This is retrospectivity which is required because the 2003 amendments were also retrospective to 1 July 2001. This will ensure that the policy intent is reflected in the law since the introduction of division 4 in the 1997 act. Therefore retrospectivity is appropriate. Labor supports the efforts to clarify the law and provide certainty to taxpayers. However, I note that these clarifications, which cause great uncertainty for taxpayers and business, have come rather late, since the uniform capital allowances were introduced in 2001.

I now turn to schedule 2 of the bill. This proposes to allow deductions for boating expenses to taxpayers who do not use their boat for specific business activities. Current income tax law allows only deductions for expenses incurred from operating a boat where the boat is used for a specific business purpose. The tax law denies deductions for taxpayers who use or hold their boat or boats to earn some passive income. For example, a boat owner who occasionally rents out their boat for income is not entitled to a deduction. These amendments will allow deductions for expenses related to earning income from boats even when they are not carrying out a specified boating business. The proposed changes will allow taxpayers who cannot demonstrate that they were carrying on a business using a boat to deduct expenditure related to their boating activity up to the level of income they generate in that year and allow excess deductions to be carried forward and deducted against future boating income activities. A taxpayer will be able to deduct expenses to: acquire a boat; retain ownership; acquire rights to use a boat; retain rights to use a boat; and use, operate, maintain or repair a boat in relation to any obligation associated with a boat or any obligation associated with a taxpayer’s right to use a boat.

Expenditure in relation to fringe benefit will be exempt from the quarantining rule so that expenditure by an employer in providing a boat as a fringe benefit as part of a salary package is deductible to the employer regardless of the employer’s boating income. This is consistent with the general treatment under income tax law of expenses in providing fringe benefits. The amount to be carried forward to be used against future boating income is modified for some taxpayers who receive a capital gain from their boating activity, have boat business profits, receive exempt income or become bankrupt. Labor supports this measure. The amendment should ensure that where taxpayers generate an income treatment using their boat they are not be treated unfairly compared to other taxpayers.

Schedule 3 of the bill proposes amendments to the tax law relating to research and development tax concessions. The amendments make 10 technical amendments to clarify the law, remove unintended consequences and ensure the law accurately reflects the original policy intent of the R&D provisions. Three main tax concessions that companies that incur expenditure on R&D may claim are: accelerated R&D deduction, 125 per cent rate; premium incremental concession, 175 per cent rate, for companies that increase their level of R&D expenditure over the average R&D expenditure over the preceding three years; and the refundable tax offset for small companies equivalent to the value of the R&D deductions. Labor supports the amendments. However, Labor notes that more than technical amendments are required to boost R&D in this country.

Debate interrupted.