llblwa - australasian legal information institute · the parliament of the commonwealth of...

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ARTHUR ROBTNSON & HEDDERWICKS LlBlwa

1996

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

Tax Law Improvement Bill 1996

EXPLANATORY MEMORANDUM

(Circulated by authority of the Treasurer, the Hon. Peter Costello, MP)

79922 Cat. No. 96 5605 7 ISBN 0644 48037 8

1111 11 9 780644 480376

Table'ofContents· ,

General Outline & Financial Impact • Provides a general outline of proposed changes including

page 1 - 12 their compliance impact and any financial impact.

Chapter

1 About the Tax Law Improvement Project • Provides background information on the Tax Law

page 13 - 16 Improvement Project.

2 Assessable Income Summarises rewritten rules for various amounts in

page 17 - 30 assessable income.

3 Recoupment of Deductible Expenses Summarises rewritten rules about the income tax treatment

page 31 - 46 of amounts that recoup deductible expenses.

4 Leased Cars Summarises rewritten rules about the income tax treatment

page 47 - 56 of profits from the sale of previously leased cars.

5 Deductions Summarises rewritten rules allowing deductions for various

page 57 -76 miscellaneous amounts.

6 Gifts Summarises rewritten rules allowing deductions for gifts.

page 77 - 88 • 7 Entertainment Summarises rewritten rules about the income tax treatment

page 89 - 98 of entertainment expenses.

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Table of Contents

• I 8 Depreciation Summarises rewritten rules allowing deductions for the

page 99 - 142 depreciation of plant.

• 9 Exempt Income Summarises rewritten rules making various·income

page 143 - 154 amounts exempt.

10 Trading Stock Summarises rewritten rules about the income tax treatment

page 155 - 184 of trading stock.

11 Primary Production Summarises rewritten rules allowing deductions for certain

page 185 - 206 capital expenditure incurred by primary producers and some land-holders.

12 Miscellaneous Amendments Explains minor amendments consequent on introducing the

page 207 - 210 Tax Law Improvement Bill 1996.

J 13 Dictionary Explains how the Tax Law Improvement Bill 1996 deals

r- page 211 - 220 with definitions and the role of the Dictionary in helping readers to find defined terms.

14 Finding Tables Cross references provisions in the pending Income Tax

• page 221 - 255 Assessment Act 1996 and the Tax Law Improvement Bill 1996 to their corresponding provisions in the Income Tax Assessment Act 1936 (and vice versa).

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General Outline

A. General Outhne

This Bill is the second instalment of the rewrite of the income tax law by the Tax Law Improvement Project. The first instalment is contained in the Income Tax Assessment Bill 1996 which is before Parliament at the time of preparing this memorandum. For convenience, references to the measures contained in that Bill are described as if that Bill had been enacted. Passage of, and assent to, that Bill are not to be presumed .

Background

The Tax Law Improvement Project (TLIP) was established in December 1993 to restructure, renumber and rewrite in plain language Australia's income tax law. This was in response to a recommendation of the Joint Committee of Public Accounts that a task force be set up to rewrite the income tax law. An aim of the project is to reduce compliance costs, and improve compliance, by making the law easier to use and understand.

Tax Law Improvement Bill 1996

The first instalment of the Tax Law Improvement Project established a structure and framework for a new Income Tax Assessment Act, to progressively replace the income Tax Assessment Act 1936 (the 1936 Act).

Building on that platform, this Bill contains rewrites of further areas of the pending 1936 Act and continues to adopt features designed to make it easier for readers to read, use and apply the new law and, as a result, lower costs of compliance.

Coatent of the Bill

The Bill includes rewrites of provisions of the 1936 Act that deal with:

• including various miscellaneous amounts in assessable income; • exempt income; • deductions for various miscellaneous amounts; • trading stock; • profits from the sale of previously leased cars; • deductions for depreciation of plant; • . deductions for capital expenditure of primary producers and some land-

holders using land for business purposes; • entertainment expenses; • deductions for gifts; and • the treatment of amounts that recoup deductible expenses.

General Outline

The rewritten rules also include 30 enhancements in the operation of the rewritten provisions which will make the law simpler, clearer and less burdensome for taxpayers. They do this by:

• replacing impractical rules with ones which facilitate taxpayer compliance;

• simplifying rules which are too complex; • deleting unnecessary rules; • removing anomalies; and • clarifying ambiguities.

About half of these changes pick up existing administrative practices which are largely to the benefit of taxpayers.

As well, the Bill will contain transitional and consequential amendments that support the rewritten rules. Among other things, these will:

• amend Commonwealth Acts including the 1936 Act and the pending the 1996 Act that contain references to the existing law, to ensure that they reflect the rewritten provisions; and

• make amendments closing off the application of provisions in the existing law rewritten in the Bill.

As a general rule, the rewritten law will first apply for the 1997-98 income year.

Structure of the Bill

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The content of the Bill is arranged in schedules.

All of the rewritten provisions of the 1936 Act are in Schedule 1, in the order in which they will appear in the pending 1996 Act. These provisions are in one schedule to keep all of the rewritten provisions together in the Bill.

After Schedule 1, the Bill contains a number of other schedules. Each of those schedules contains all the transitional and consequential amendments needed for one subject in the rewritten provisions. For example, the transitional and consequential amendments for the assessable income rewrite are in Schedule 2, for exempt income in Schedule 3, and so on.

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General Outline

The following table is a quick reference guide to the structure of the Bill:

TLlB Schedule 1- Division

Division 15 -Assessable Income

Division 20 -Recoupment of Deductible Expenses Leased Cars

Divisions 25, 26 & 34 -Deductions: particular items

Division 30 -Gifts

Division 32 -Entertainment

Division 42 -Depreciation of Plant

Divisions 50-53, 55 -Exempt Income

Divisions 70 & 385 -Trading Stock

Division 387 -Capital Allowances for Primary Producers and some Land-holders

Miscellaneous Amendments

EM Chapter No.

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Consequential and Transitional Schedule No.

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General Outline

B. Summary of Main Changes

In addition to the general improvements in structure, presentation and readability of the areas being rewritten, the Bill will make a number of specific changes to the operation of the law. These will mainly facilitate simpler and clearer expression and less arduous compliance requirements.

Assessable Income

The rewritten provisions which include particular amounts in assessable income will also contain the following specific change.

1. Income from lease premiums overlapping CGT provisions

Change: Omit a provision which includes in assessable income premiums received for the grant of a lease of property that is not for use for income producing purposes. The result will be to deal with these under the capital gains tax provisions.

Existing law: Assesses the premium a lessor receives for granting a lease where the lessee did not intend the property to be used in gaining or producing assessable income. The capital gains tax provisions also apply to the grant of a lease and although there is no double taxation, the overlap causes confusion and unnecessary cost.

Deductions

As well as rewriting provisions that allow deductions for various amounts, the Bill will make the following specific changes.

1. Rates and mutual receipts

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Change: Align the law with administrative practice by confirming that deductions for rates and land tax are allowable on premises used to produce mutual income.

Existing Law: Under the principle of mutuality, an entity cannot derive income from itself. This technically precludes clubs, professional associations and similar organisations from deducting land tax and rates.

Bad debts

Change: Confirm the administrative practice of allowing a money lender to deduct bad debts on a purchased loan when the debt is written off.

Existing law: If a money lender purchases a debt, the law is not completely clear on when a bad debt can be deducted. Administrative practice allows a deduction when the debt is written-off.

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General Outline

Borrowing expenses

Changes: • allow a deduction for any remaining undeducted borrowing expenses if

the loan is repaid early; and • Clarify that a deduction is only allowed for borrowing expenses to the

extent that the money is used to produce assessable income in the year in which the deduction is claimed .

Existing Law: Expenses of borrowing money for use in producing assessable income are normally deducted over the period of the loan or over five years. The first change provides a new benefit for taxpayers. The second change clarifies an area of uncertainty.

Capital legal expenses

Change: Omit the provision which specifically allows a deduction for $50 in capital legal expenses.

Existing law: Allows a deduction of up to $50 of legal expenses incurred in carrying on a business to produce assessable income, even if the expenses are of a capital nature. The deduction must be· reduced by any legal expenses that can be deducted under the general deduction provision.

Trading Stock

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The Bill will enhance the structure of the law on trading stock by moving the provisions for deferring profit on forced disposal of live stock from the general trading stock rules to the primary production provisions in the new law. By concentrating specialist rules together they do not complicate the general parts of the law, and are more easily found by specialists.

The Bill will also make the following specific changes.

Change in the use of trading stock

Change: Provide an explicit treatment for the conversion of assets into or from trading stock for the first time. That treatment will be to deal with the conversion as a notional sale and immediate re-acquisition at cost.

Existing Law: The legislation is silent about how to treat a taxpayer who commits assets to trading stock, or takes them from trading stock but retains ownership. There is little case law on these changes of use, apart from court decisions that the eventual disposal of trading stock devoted to a capital 'use is a disposal of trading stock outside the ordinary course of business. .

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General Outline

2. Bovine tuberculosis

Change: Bring the fonnula for reducing the tax cost of replacement stock on the • disposal of tubercular cattle into line with the fonnula used for disposals due to other diseases.

Existing Law: If diseased cattle are disposed of, a primary producer can elect to spread the assessment of any profits over five years or to reduce the tax cost of

replacfementhasstocdk acqluired in thosek~vdie 'Yffiears. 'I?fethfonnd' ula f~r redb ~cing the tax .: cost 0 pure e rep acement stoc IS erent I e lsease IS ovme tuberculosis than it is for other diseases.

3. Change in ownership

Change: Clarify the law by replacing rules that apply to disposals of part interests in trading stock with rules that apply to a change in the taxpayer who accounts for the trading stock.

Existing Law: A partial disposal of trading stock outside the ordinary course of business is treated as a sale of the trading stock at market value from the old owners to the new owners, even if they are the same entities and only their proportionate interests have changed.

4. Tree plantation deduction: disposal on death of taxpayer

Change: Remove an anomaly by extending the deduction allowed for the cost of plantation trees on their disposal outside the ordinary course of business to cases where the trees are disposed of because of the owner's death.

Existing.Law: Allows a deduction for the cost of plantation trees acquired with land when they are disposed of outside the nonnal course of business but not for disposals caused by the death of the owner. In the latter cases, the full value of the trees is assessed without deduction.

5. Cost of natural increase

Change: Simplify the valuation of the natural increase of live stock, by standardising the choices of valuation to actual cost or a prescribed minimum value.

Existing Law: Choices for working out the cost of natural increase of live stock are excessively complicated and have inconsistent conditional requirements.

6. Standardise partnership and trust election rules

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Change: Allow partnerships and trusts to make a single election to defer assessing income from:

• certain abnormal disposals of live stock; insurance recoveries for losses of live stock or trees; the sale of double wool clips; and •

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General Outline

the devolution of trading stock on death by allowing each partnership and trust estate to make a single election.

Existing law: There are a number of different systems requiring either elections by individual beneficiaries and partners, at the partnership or trust level or a combination of these.

Valuing live stock

Change: Standardise the valuation oflive stock and other kinds of trading stock by allowing:

• the choice of replacement price as a valuation method; • different items oflive stock to be valued on different bases; and • valuation methods to be changed yearly without approaching the

Commissioner.

Existing Law: In valuing closing stock a general trader can choose between different values for each item of stock (cost, replacement price, or market selling value). In contrast, for live stock the choice of replacement price is unavailable; the same method is required for all live stock and the Commissioner's permission is required in order to use another basis in a later year.

8. Live stock elections and abnormal disposals

Change: Standardise the forms of elections to defer the assessment of profits from abnormal disposals oflive stock.

Existing Law: Taxpayers may elect to defer the taxing point for profits on disposal of live stock outside the ordinary course of their business rather than return the market value of that stock as assessable income. The forms of the elections are complex, confusing and inconsistent.

9. Opening stock values

Change: Ensure that the value of stock on hand at the start of a year is always the same as the value used for it at the end of the previous year.

Existing Law: The value of trading stock at the start of a year may be able to be amended if it is wrong. Time limits may mean that the previous year's closing figure (which should be the same) can not also be amended.

Depreciation

The Bill will improve the structure of the depreciation provisions by:

• placing the main operative provisions up front; and • arranging the other provisions into Subdivisions each dealing with a

component of the deduction calculation.

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General Outline

Where possible, the law has been aligned with practice, areas of uncertainty have been clarified and unnecessary rules removed. The following notes discuss the most important of those changes. There are also a number of miscellaneous I changes. All changes are discussed in detail in Part B of Chapter 8.

1. Hire purchase

Change: Align the law with administrative practice by allowing taxpayers who hold plant under a hire purchase agreement to claim depreciation.

Existing Law: Depreciation can only be claimed on plant that is owned by a taxpayer although it has been a long standing practice to allow the hirer under a hire purchase agreement to claim depreciation.

2. Cost of previously depreciated plant

Change: Allow taxpayers who acquire previously depreciated plant to depreciate it on the basis of its cost to them without having to approach the Commissioner for approval. However the Commissioner will have a discretion to reduce its cost in certain circumstances.

Existing Law: The amount a taxpayer can deduct for previously depreciated plant is automatically limited to the vendor's written down value and any assessable balancing charge, unless the Commissioner exercises a discretion to allow depreciation on the basis of its cost.

3. Cost of plant acquired with other assets

Change: Provide a cost for plant acquired with other assets without a specific price being allocated to it.

Existing Law: There is no guidance on what the cost should be for plant acquired in these circumstances (although the law contains the basis for calculating a termination value for plant sold in such cases.)

4. Notional write down of plant

Change: Clarify that plant is to be notionally written down for any period when it is used for a purpose other than producing assessable income.

Existing Law: While the law is applied in this manner, it is not expressly stated .

5. Prime cost election

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Change: Allow a taxpayer, when choosing a method of calculation, to elect to use the prime cost method for any unit of depreciable plant.

Existing Law: The election to use prime cost is irrevocable and must be made at the commencement of depreciation for all units of depreciable property that have been acquired during the income year.

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General Outline

Using a lower rate

Change: There will be no restriction against adopting a lower depreciation rate .

Existing law: Plant cannot be written off over a period that is longer than its effective life .

Leased Cars

The Bill will create new Subdivision 20-B which improves on the structure of the provision it replaces by separating the usual treatment of profits on the sale of leased cars from the special rules for disposals by associates. Consequently, most affected taxpayers will not have to deal with the more specialised parts of the Subdivision.

The Bill will also make the following specific change.

1. Disposal of previously leased cars

Change: Standardise the treatment of the profit from the disposal of previously leased cars to include insurance payments in assessable income where property passes to an insurance company.

Existing Law: The existing law includes in assessable income any profit on the disposal of a car by a taxpayer who had previously leased it for income producing purposes but is unclear on the treatment when property passes to an insurance company.

Primary Production

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The Bill will make structural improvements to the capital allowance provisions for primary production and some land-holders by:

• collocating seven of the capital allowances in one division because of their common theme of the use of land for business; and

• merging the timber access road and timber mill building subdivisions into one subdivision thereby reducing duplication .

The Bill will also make the following specific changes.

Capital expenditure on forestry roads and timber mill buildings.

Change: Align the law with administrative practice by allowing taxpayers acting in good faith to deduct capital expenditure on a forestry road or timber mill· building on the basis of its cost to them, if they acquire it from someone who has previously claimed deductions for it.

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General Outline

Existing Law: The current law limits the amount a taxpayer can deduct to the sum of the vendor's written down value and any assessable balancing charge. The Commissioner has a discretion which is usually exercised to allow deductions to be based on actual expenditure.

2. Capital expenditure on telephone lines

Change: Remove an anomaly by allowing a deduction for capital expenditure incurred on a telephone line where a deduction for it has also been allowed to the entity which installed it for the taxpayer.

Existing Law: A deduction is denied for any part of the line for which another taxpayer has been allowed a deduction.

Entertainment

The Bill will incorporate structural improvements in rewriting the entertainment provisions by:

• bringing together at the beginning of the Division the two operative provisions in the entertainment area that do not allow a deduction for expenditure incurred in providing entertainment and not allow a deduction in relation to property;

• including to the extent possible the relationship between the entertainment provisions and the FBT provisions in the first exception; and

• incorporating the rest of the exceptions into tables that group related exceptions and are easy to read, bringing together the assessing provision previously contained in section 26AAC with related deduction provisions about in-house dining facilities.

The Bill will also make the following specific change.

1. Self entertainment

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Change: Remove the exception for 'self entertainment' from the general rule that entertainment expenses are non deductible, as it is overly complex and compliance is low.

Existing Law: Stops a taxpayer from deducting entertainment expenses under the general deduction provision unless the expenditure is on the entertainment of the taxpayer, their employees or contractors and where the person entertained could have deducted such expenditure.

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General Outline

Recoupment of deductible expenses

The Bill improves on the structure of the existing 23 provisions dealing with recoupment of deductible expenses by consolidating these provisions in one place. This will make the law simpler, shorter and easier to find.

1. Standardise treatment of recoupment of deductible expenses

Change: Standardise the treatment of recoupment of certain deductible expenses so that these recoupment amounts will be assessable when received, but only to the extent that they do not exceed the amount of deductions already allowed.

Existing Law: There are 23 provisions in the existing law dealing with recoupment received for amounts that are allowable as deductions. These provisions either disallow deductions or treat the recoupment as assessable income when received.

C Finding Tables This Explanatory Memorandum contains finding tables which cross-reference the existing and rewritten provisions to make it easier to find your way from the existing law to the new law, and vice versa (see Chapter 14).

D Revenue Impact The Bill will have a broadly neutral impact on revenue. All but three of its measures will have no measurable effect.

A proposal to allow a deduction for rates and land tax on premises used to produce mutual receipts will have an annual cost of less than $10 million.

A change to bring the valuation methods for live stock closer into line with those for other kinds of trading stock will cost up to $10 million in most years. In an occasional year where there is a large fall in stock prices the cost could exceed $25 million.

The third measure relates to changes of use of trading stock such as where goods are taken for personal use. This will result in a gain to the revenue of about $30 million in 1998-99 and $25 million in each year thereafter.

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General Outline

E. Compliance Impact The Bill should achieve a noticeable reduction in compliance costs for those using the parts of the income law it deals with. That reduction will not occur because of any single change but from the accumulation and combined impact of many small improvements.

The law will be shorter, clearer and simpler. Together, through provision after provision, these will produce a significant effect.

There are particular measures aimed at reducing compliance costs by which:

• unnecessary requirements of the existing law will be removed; • the number of complex calculations will be cut back; • rules that have essentially the same effect will be standardised; • record keeping obligations will be reduced; and • the law will be brought into line with practical administrative positions.

A more significant reduction in compliance costs will arise as a result of the following changes:

• allowing partnerships and trust estates to make a single election to defer assessable income from various sources. This change will reduce the number of elections required, simplify calculations and save text; and

• including compensation amounts for certain deductible expenses in assessable income rather than disallowing the deduction. This eliminates the need to seek amended assessments for an earlier year when an amount of compensation is received.

F Date of Effect

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All measures in the package of Bills will apply from the beginning of the 1997-98 income year. For some measures, special transitional arrangements will apply. These are explained in the notes descnbing those measures.

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About the Tax Law Improvement Project

This chapter provides background information on the Tax Law Improvement Project.


Overview of this chapter

This chapter discusses briefly:

• the role of the Tax Law Improvement Project in redressing problems with the structure and expression of the existing law; and

• how this instalment builds on the resulting improvements developed in the pending 1 996 Act.


In November 1993, the Joint Committee of Public Accounts published a report recommending the setting up of a broadly based task force to rewrite the income tax law. In the following month, the Tax Law Improvement Project was established.

This is a project to restructure, renumber and rewrite in plain language Australia's income tax law. It aims to improve taxpayer compliance and reduce compliance costs by making the law easier to use and understand.

In the course of the rewrite, opportunities are being taken to make minor content changes to improve the law. These aim to reduce or eliminate unnecessary complexity and bring the law more into alignment with administrative and commercial practice.

Problems with the existing law

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For many years, the income tax law has been criticised as being too difficult to read and understand. When the 1936 Act was introduced, it was under 100 pages long. Now, it is some forty times longer. Sixty years of constant change has produced a body of law that no longer meets the needs of its users. It is hard to understand the framework of the law and to assimilate the detail. The law is far from being reader friendly.

Structure

Originally, the structure of the existing law was a logical arrangement of the sections however the volume of material added in later years has obscured the original structure so that it is no longer readily discernible.

The pending 1996 Act proposes a new structure, one which will reintroduce a logical arrangement of material and provide readers with a framework which will be easier to follow and use. As well, the new structure is designed to be flexible enough to continue to meet its readers' needs well into the future.

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This Bill continues the process of progressively rewriting the 1936 Act and placing this material within the structure of the new Income Tax Assessment Act.

Numbering

The Bill adopts the versatile numbering system established in the pending 1996 Act to overcome problems of over-crowding in the existing law and accommodates expansion.

Language

As well as changes to the structure of the law, the Bill continues to improve the expression of the law by concentrating on the needs of those who read and apply it. The existing law is so complex that even many professional advisers have come to rely on secondary and source materials to inform themselves; largely ignoring the statutory expression.

This Bill adopts a style which has been designed for the widest professional audience. Individual taxpayers do not necessarily read the law, but provisions which affect them must be capable of being readily communicated by their advisers.

In order to assist in that task, rewritten provisions that apply to individual taxpayers address the reader directly.

Using a familiar style to most people will make the law less intimidating, more directly engaging and accessible by a wider audience. This helps people make personal sense of the law.

Direct address simplifies the text. It supports proven methods of improving a reader's ability to understand documents (eg. by using active rather than passive voice and using action verbs). Tax advisers and educators should be able to use the words of the law directly when explaining people's rights and obligations.

Layout

The way in which the law is presented is as important to comprehension as its text and structure. Important advances in this area made in the pending 1996 Act are continued.

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Assessable Income

This chapter explains the rewritten provisions that include particular amounts in a taxpayer's assessable income.

These provisions are contained in new Subdivision 15-A in Schedule 1 to the Tax Law Improvement Bill 1996.

Transitional and consequential amendments for the rewritten provisions are contained in Schedule 2 to the Bill.

Assessable Income


This chapter covers;

• the rewritten provisions in Subdivision IS-A (Assessable Income) in Schedule 1 to the Tax Law Improvement Bill 1996; and

• the transitional provisions and consequential amendments for those rewritten provisions in Schedule 2 to the Bill.

Subdivision IS-A contains the rewritten provisions of the 1936 Act that include particular amounts in a taxpayer's assessable income. The corresponding provisions of the 1936 Act are mainly in section 26 of that Act.

The rewritten provisions will complement the core provisions about assessable income contained in Division 6 of the pending 1996 Act.

Part A of this chapter summarises new Subdivision IS-A.

Part B explains the changes proposed to the content of the current provisions.

Part C explains why some provisions of the 1936 Act have not been rewritten.

Part D explains the transitional provisions which set out how and when the rewritten provisions will apply.

Part E explains the amendments that need to be made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, because of the rewriting of the provisions of the 1936 Assessment Act.

A. Summary of the new law

Guide to Subdivision 1S-A: Some items of assessable income

What the Subdivision will do

Subdivision IS-A, which will apply to taxpayers generally, will include the following amounts in assessable income.

Return to work payments Amounts received under an arrangement to induce you to resume working for, or providing services to, an entity. {section 15-3}

Accrued leave transfor payments

Bounties and subsidies

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Amounts you receive from an entity for leave accrued by someone who previously worked for that entity, but now works for you./section 15-5}

Bounties or subsidies received in carrying on a business (which are not already ordinary income). {section 15-10)

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Profits arisingfram a profit-making undertaking

Royalties

Amounts for a lease obligation to repair

Insurance or indemnity amounts for the loss of assessable income

Interest on overpayment or early payments of tax

Assessable Income

Profits from carrying on a profit-making undertaking (that are not ordinary income or do not arise from the sale of property acquired on or after 20 September 1985). {section 15-15)

Amounts received as royalties in the ordinary sense (that are not ordinary income). {section 15-20}

Amounts received as a lessor or former lessor from an entity for failing to comply with a lease obligation to repair premises where the entity uses or has used the premises to produce assessable income. {section 15-25}

Amounts received by way of insurance or indemnity for a loss of an amount that would have been included in your assessable income (where the insurance or indemnity amount is not ordinary income). {section 15-30}

Interest you receive under the Taxation (Interest on Overpayments and Early Payments) Act 1983 will be assessed when it is paid to you or applied to discharge a liability you have to the Commonwealth. {section 15-35}

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Assessable Income

B Discussion of changes

Section 15-1 Return to work payments

This section will include in your assessable income an amount you receive under an arrangement entered into to induce you to resume working for, or providing services to, someone else.

Change The section will only apply to an amount received under an arrangement (as defined in section 995-1 of the pending 1996 Act).

Explanation The existing law (paragraph 26(eb» applies to 'an agreement, arrangement or understanding (whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable by legal proceedings)'.

The standardised definition of arrangement in section 995-1 of the pending 1996 Act is identical to the existing wording, except that it includes a reference to 'a promise or undertaking'. However, in section 15-1 any promise or undertaking of the kind described would be covered by lhe existing reference to 'agreement, arrangement or understanding'.

Section 15-10 Bounties and subsidies

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This section will include in assessable income a bounty or subsidy received in carrying on a business, unless it is ordinary income.

1. Change Omit from the rewritten section the existing exemption for petroleum search subsidies.

Explanation The exemption in the existing provision (paragraph 26(g» is redundant, as it was inserted to cover payments made under the Petroleum Search Subsidy Act 1957, which was repealed in 1972.

2. Change Omit from the rewritten section the words that deem a bounty or subsidy to be part of the proceeds of a business.

Explanation These words are redundant. They were inserted to ensure that bounties and subsidies were treated as income from personal exertion for the purposes of the 1936 Act. That Act makes a distinction between income from personal exertion and income from property that no longer has any practical effect.

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Assessable Income

3. Change The rewritten section will only apply to bounties and subsidies that are not ordinary income.

Explanation Most bounties or subsidies in relation to business activities will be assessed as ordinary income. However any bounties or subsidies of a capital nature related to carrying on of business will be assessable under this provision. The exclusion of ordinary income makes it clear that the section does not modify the treatment of bounties or subsidies that are ordinary income - in particular, those returnable on an accruals basis.

Section 15-15 Profit-making undertakings

This section will include in assessable income a profit that arises from carrying out a profit-making undertaking or plan, provided that the profit:

• is not ordinary income; or • does not arise from the sale of property acquired on or after 20 September

1985.

1. Change The rewritten section will not include in assessable income profits from the sale of property acquired for the purpose of profit-making by sale.

Explanation The existing law (section 25A) includes in assessable income:

• profits from a sale of property acquired for profit-making by sale; and • profits from carrying on any profit-making undertaking or plan.

Capital gains tax (COT), introduced in 1985, provided for a new treatment of profits from the sale of property. As a consequence, section 25A only applies to a sale of property if the property was acquired before COT was introduced. Because the ongoing operation of these rules is minimal, they will for the time being continue to operate in the existing law without being rewritten.

That part of the existing law that applies to profits from carrying on any profit-making undertaking or scheme has been rewritten in section 15-15.

2. Change The rewritten section will use the word plan instead of the defined term scheme.

Explanation The existing law uses the phrase 'profit-making undertaking or scheme'.

Scheme has been defined in the pending 1996 Act. It is intended to be used in anti-avoidance contexts. As section 15-15 is not an anti-avoidance provision, plan will be used instead. There is no change from the meaning of the existing law.

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Assessable Income

3. Change The rewritten section will only assess amounts that are not ordinary income.

Explanation This wording change reflect the courts' view of the existing law - that you only need to consider the specific rules about profit-making transactions if a profit is not assessable as ordinary income.

Profits arising from the carrying on of a profit-making undertaking or plan will generally be assessed as ordinary income. However, if there are any capital profits which satisfy the section, they will be assessable under this provision.

Section 15-20 Royalties

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This section will include in assessable income an amount which is a royalty in the ordinary sense of that term (an ordinary royalty), unless it is ordinary Income.

Change This rewritten section will only assess ordinary royalties that are not ordinary income.

Explanation The existing provision (paragraph 26(f) assesses all royalties (as defined), except those amounts which are royalties only because of the definition, and are not ordinary income.

This treatment of royalties is demonstrated in the following table:

Amount is ordinary income

Amount is not ordinary income

Amount is an ordinary royalty

Assessable

Assessable

Amount is a royalty only under statutory definition

Assessable

Not assessable

The existing provision applies to every scenario in this table.

The rewritten section will allow the general income provision (section 6-5 of the pending 1996 Act) to assess amounts which are ordinary income. The only other type of payment that the rewritten section will cover is an ordinary royalty that is not ordinary income.

This will make the law easier to understand.

•

• •

• •

Assessable Income

The exclusion of ordinary income also makes it clear that the section does not modify the treatment of royalties that are ordinary income and accounted for on an accruals basis.

Section 15-25 Amount received for a lease obligation to repair

This section will include in assessable income an amount received by a lessor or former lessor from an entity for failing to comply with a lease obligation to repair premises where that entity uses or has used the premises to produce assessable income.

Change The rewritten section will only assess amounts that are not ordinary income.

Explanation The exclusion of ordinary income makes it clear that the section does not modify the treatment of amounts that are ordinary income and returnable on an accruals basis.

Section 15-30 Insurance and indemnity amounts for the loss of assessable income

This section will include in assessable income an insurance and indemnity amount if:

• it is for the loss of an amount that would have been included in assessable income; and

• it is not ordinary income.

Change The rewritten section will only assess amounts that are not ordinary income.

Explanation Insurance and indemnity amounts for the loss of an amount that would have been assessable income will generally be assessed as ordinary income. Any amounts that are not ordinary income will be assessable under this provision.

The exclusion of ordinary income makes it clear that the section does not modify the treatment of insurance and indemnity amounts that are ordinary income and returnable on an accruals basis.

23

Assessable Income

c. Provisions of the old law that have not been rewritten

Redundant provisions

Some provisions of the existing law are redundant and have not been included in the new law. They are summarised in the following table:

Provision

Section 22

Subject

Income received from a pre-1936 transaction is assessable under the 1936 Act if it would also have been assessable under the Income Tax Assessment Act 1922.

Paragraph 26(h) Fees and commissions received for procuring a loan.

Paragraph 260a) Amounts received for trading stock under the Decimal Currency Board Act 1963.

Reason for omission

It is unlikely that any income of this kind is still being received.

These amounts, being rewards for service, are ordinary income, and do not need to be specifically included.

The Decimal Currency Board Act was repealed in 1981.

Unnecessary duplication

24

Provision not to be rewritten The existing law (section 26AB) assesses any premium that:

• a lessor receives for granting a lease if, when granted, the lessee did not intend the leased property to be used to produce assessable income; or

• a lessee receives for assigning a lease if, when assigned, the assignee did not intend the leased property to be used to produce assessable income.

Reason for omission Section 26AB largely duplicates the work done by the capital gains tax (CGT) provisions, which deal more comprehensively with lease premiums.

In particular, section 160ZS provides that the grant of a lease is treated as a disposal of the lease by the lessor for the premium. Any excess of the premium over the cost base is a capital gain, the cost base being the expenses incurred by the lessor in respect of granting the lease.

The CGT treatment oflease assignments is similar.

Section 26AB, and the CGT provisions, often both apply to a grant or assignment of a lease for a premium. However, the premium is not taxed twice as the amount of a capital gain is reduced to the extent that the lease premium is assessable (section 160ZA).

The proposed omission of section 26AB will result in lease premiums that are not ordinary income being dealt with exclusively under the CGT regime. This change, which can give a slightly better outcome for taxpayers than if

• •

• •

I

~

• .,

D

Assessable Income

the premiums were excluded from the CGT provisions, will result in some changes in treatment:

• a smaller amount may be brought to account. For example, expenses incurred in granting the lease would not normally be deductible but would reduce the capital gain;

• a taxpayer may reduce a capital gain by unused capital losses of previous years; and

• the taxpayer's capital gains may be notionally averaged, reducing the tax on the premium.

Transitional arrangements

Part 1 of Schedule 2 of the Tax Law Improvement Bill 1996 will amend the pending Income Tax (Transitional Provisions) Act 1996 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.

Part 1 will insert in the pending Income Tax (Transitional Provisions) Act 1996 new Subdivision IS-A. New Subdivision 15-A will set out how and when the rewritten sections will apply.

The rewritten provisions will generally apply to assessments for the 1997-98 or later income years. [Schedule 2, Part I: subsection 15-1(1), pending Transitional Provisions ActJ

In some cases, however, it is necessary to have different rules for the application of the rewritten provisions [Schedule 2, Part I: subsection 15-1 (2), pending Transitional

Provisions ActJ. The reasons for this are to ensure: • some rewritten provisions apply in the 1997-98 or later income years even

though certain key events may have happened before that time; • a smooth transition between the existing provisions and the rewritten

provisions where the rewritten provisions both assess amounts when received and exclude amounts that are assessable as ordinary income; and

• a reference to assessable income in the rewritten provision covers amounts assessable under the 1936 Act and the pending 1996 Act.

Rewritten provisions that will apply from the 1997-98 income year, even though key events happened before that time

The transitional provisions that give effect to this purpose are explained in the table below. In each case, the transitional section number corresponds to the section number of the rewritten provisions.

Transitional section

15-15

Nature of amount and section reference in the rewrite

Profits from a profit-making undertaking

Description of event that can happen before the ]997-98 income year

The undertaking was entered into or began to be carried on.

2S

Assessable Income

15-30

15-35

Insurance or indemnity amounts for a loss of assessable income

The loss to which the insurance or indemnity amount relates.

Interest on overpayments or early Accrual of all or part of the interest. payments of tax

Rewritten provisions that will assess amounts when received and exclude amounts of ordinary income.

Sections IS-lO (bounties and subsidies), IS-20 (royalties), IS-2S (amounts for a lease obligation to repair) and IS-30 (amounts for a loss of assessable income) will all assess amounts when received while excluding amounts of ordinary income. These provisions will apply to amounts received in the 1997-98 income year and later income years [Schedule 2, Part I: sections 15-10,15-20,15-25 and 15-30,

pending Transitional Provisions Act], rather than to assessments for the 1997-98 income year or later income years.

This will ensure that amounts of ordinary income that would otherwise fall within the existing provisions are assessed if they are derived in the 1996-97 or earlier income years, but are received in the 1997-98 or later income years.

A reference to 'assessable income' covers amounts assessable under both the 1936 Act and the pending 1996 Act

Section IS-30 will assess insurance or indemnity amounts received for the loss of an amount of assessable income. The transitional section for this rewritten provision [Schedule 2, Part I: section 15-30, pending Transitional Provisions Act] ensures that it applies to losses of amounts that are assessable income, regardless of whether the amounts are assessable under the 1936 Act or the pending 1996 Act.

E Consequential amendments

Amendments of the pending Income Tax Assessment Act 1996

Part 2 of Schedule 2 to the Bill will amend the pending 1996 Act to: • update references to provisions of the 1936 Act that have been rewritten in

Subdivision IS-A; and • insert additional definitions in the Dictionary in section 99S-1 of terms

that are used in the rewritten provisions contained in Subdivision IS-A in Schedule 1.

Updated references

26

Section 10-S of the pending 1996 Act contains a list of all the provisions of both the existing and rewritten laws that deal with particular kinds of assessable income. Part 2 of Schedule 2 will update those references to existing provisions

• •

• •

• •

• •

Assessable Income

that have been rewritten in Subdivision IS-A, so that the lists refer to the rewritten provisions. [Schedule 2, Part 2: items 3 to I6[

References in section IO-S to existing provisions (section 26AB and parts of section 2SA) that will have some limited ongoing operation have been changed to take account of this operation. [Schedule 2, Part 2: items 11 and 14/

New Dictionary terms

Part 2 of Schedule 2 will insert a new definition of a term used in the rewritten provisions in Subdivision IS-A in.

New Definition: Royalty. [Schedule 2, Part 2: item 17/

Commentary: For the time being, royalty will have the meaning given by the definition in subsection 6(1) of the 1936 Act.

Application of amendments

The amendments made by Part 2 of Schedule 2 apply to assessments for the 1997 -98 and later income years [clause 4, Tax Law Improvement Bill/. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the assessable income provisions.

Amendments of the Income Tax Assessment Act 1936

Part 3 of Schedule 2 to the Bill will amend the 1936 Act to: • insert references to the rewritten provisions contained in Subdivision IS-A

where the 1936 Act currently refers to the existing provisions; and • close off the application of provisions of the 1936 Act that have been

rewritten in Subdivision IS-A, so that the existing provisions apply only to the 1996-97 and earlier income years; and

• preserve the operation of an existing Income Tax Regulation made for the purposes of paragraph 26( eb) of the 1936 Act, which has been rewritten in Subdivision IS-A.

Inserting references to rewritten provisions

Part 3 of Schedule 2 will insert in the 1936 Act references to the rewritten provisions contained in Subdivision lS-A where the 1936 Act currently refers to the existing provisions. There are two categories of these amendments as discussed below.

The first category will add a reference to a rewritten provision in a section of the 1936 Act where a reference to the existing provision currently appears, so that both existing and rewritten provisions are cited.

This is necessary for references to section 2SA of the 1936 Act, which has been partly rewritten (section IS-IS). The part of section 2SA that has not been

27

Assessable Income

rewritten will continue to apply in the 1997-98 and later income years. This makes it necessary to refer to both the existing and rewritten provisions. [Schedule 2, Part 3: items 18, 23 to 28 and 35 to 37J

This approach is also necessary where the provision being consequentially amended (as opposed to the rewritten provision):

• has not yet been rewritten and closed off; and • can apply to amounts relating to more than one income year (including an

income year before the 1997-98 income year). [Schedule 2, Part 3, item 29J

The second category will omit the reference to the existing provision in a section of the 1936 Act and replace it with the rewritten provision. This is necessary for those sections of the 1936 Act that:

• have not yet been rewritten and closed off; and • can apply to amounts that relate to only one income year at a time, being

the 1997-98 or a later income year. {Schedule 2, Part 3: items 30 to 32 and 34J

Closing off the application of existing provisions

Part 3 of Schedule 2 will insert new provisions into the 1936 Act that will close off the application of existing provisions to the extent they have been rewritten or are redundant. {Schedule 2, Part 3: item 19 to 22J

In these cases, the existing provisions need to be closed off so that they only apply to the 1996-97 and earlier income years. This complements the transitional provisions in Part 1 of Schedule 2 which ensure that the corresponding rewritten provisions apply to the 1997-98 and later income years.

As with the transitional provisions, it is necessary to specify in some of the closing off provisions that the existing provisions do not apply to amounts received in the 1997-98 or later income years even though certain events may have happened before that time. They are the events set out in the table in the explanation of the transitional provisions.

New section 25B of the 1936 Act is a table that closes off the various paragraphs of section 26 of that Act [Schedule 2, Part 3: item 20J. Some of those paragraphs (parts of paragraph 26U) and paragraph 26(k)) have been rewritten in the recoupment and trading stock rewrites in this Bill. However, all paragraphs in section 26 have been closed off by this Schedule for ease of drafting.

Preserving an existing Income Tax Regulation

28

Part 3 will also preserve, in particular cases, the operation of an Income Tax Regulation affected by the rewrite of paragraph 26( eb) of the 1936 Act [Schedule

2, Part 3: item 33J. Paragraph 26( eb) deals with return to work payments, and is rewritten at section 15-1.

Section 221 C of the 1936 Act allows for regulations to prescribe rates of deductions of tax instalments by an employer from an employee's salary or wages. Subsection (lAC) allows for the regulations to prescribe special rates for return to work payments paid to an employee. Income Tax Regulation 80 sets out the special rates.

• •

• •

• •

• -I

Assessable Income

Item 32 of Part 3 will substitute, in subsection 221C(IAC), a reference to section 15-1 of the pending 1996 Act for the existing reference to paragraph 26(eb). The amendment will apply to the 1997-98 and later income years.

Item 33 has been inserted as a consequence of the change made by item 32. It will ensure that paragraph (a) ofIncome Tax Regulation 80 continues to apply in the 1997-98 and later income years, to paragraph 26(eb) amounts received in the 1996-97 income year or an earlier income year. It does not give paragraph (a) of Regulation 80 general ongoing operation.


The amendments made by Part 3 of Schedule 2 apply to assessments for the 1997 -98 and later income years {clause 4, Tax Law Improvement Bill{. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the assessable income provisions.

Amendments of other Commonwealth legislation

Part 4 of Schedule 2 to the Bill will amend the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 to add references to rewritten provisions contained in Subdivision 15-A where that Act currently refers to the existing provisions. {Schedule 2, Part 4: items 38 and 39}


The amendments made by Part 4 of Schedule 2 apply to assessments for the 1997-98 and later income years {clause 4, Tax Law Improvement Bill). This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the assessable income provisions.

29

• •


This chapter explains the rewritten provisions that deal with recoupment of deductible expenses.

These are contained in new Subdivision 20-A in Schedule 1 to the Tax Law Improvement Bill 1996.

Transitional and consequential amendments for the rewritten provisions are contained in Schedule 8 to the Bill .


Overview .of this chapter

This chapter covers:

• the rewritten provisions in Subdivision 20-A (Insurance, indemnity or other recoupment for deductible expenses) in Schedule 1 to the Tax Law Improvement Bill 1996; and

• the transitional provisions and consequential amendments for those provisions in Schedule 8 to the Bill.

Subdivision 20-A contains the rewritten provisions of the 1936 Act that deal with recoupment of (or compensation for) deductible amounts. The rewritten provisions will treat certain recoupment amounts as assessable income on a consistent basis. The corresponding provisions of the 1936 Act are dispersed throughout that Act. Those rules either treat recoupment as assessable income, or claw back deductions allowable as a result of incurring deductible expenses.

The rewritten provisions complement the general provision that includes ordinary income in assessable income.

Part A of this chapter summarises new Subdivision 20-A.

Part B explains changes proposed to the content of the current provisions.



Part E explains the amendments being made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, because of the rewrite of the provisions of the 1936 Act.


Guide to Subdivision 20-A: Insurance, indemnity or other recoupment for deductible expenses


32

Subdivision 20-A will include in assessable income an amount received by way of insurance, indemnity or other recoupment if:

• it is for a deductible expense; and • it is not otherwise assessable income.

1

• •

I

I

• •

How to use the Subdivision


The Subdivision has two groups of provisions. When using the Subdivision, these groups should be considered separately. {section 20-15{.

The first group determines what recoupment amounts are assessed under Subdivision 20-A {sections 20-20 to 20-30)

These recoupments will be known as assessable recoupments. The second group of provisions does not have to be read if an assessable recoupment has not been received.

The second group determines how much of an assessable recoupment is assessable under Subdivision 20-A{sections

20-35 to 20-55).

Assessable recoupments - the amounts Subdivision 20-A will assess

The general rule

Step I: Ignore amounts that are otherwise assessable

Step 2: Insurance and indemnity amounts

Step 3: Other recoupment amounts

What is recoupment?

The rule is

Only assessable recoupments will be assessable under Subdivision 20-A There is a three-step process involved in determining whether an amount is an assessable recoupment. {section 20-20)

Amounts that are ordinary income, or are statutory income, because of a provision outside Subdivision 20-A are not assessable recoupments. {subsection 20-20(1))

Insurance and indemnity amounts received for any deductible loss or outgoing are assessable recoupments. {subsection 20-20(2)J

Recoupment amounts (except an insurance or indemnity) received for a deductible loss or outgoing are also assessable recoupments, but only if the loss or outgoing is deductible under a provision listed in section 20-30. {subsection 20-20(3))

The ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. Nevertheless, to make it clear that the term includes certain common types of compensation, it will be defined to include any kind of recoupment, reimbursement, recovery, refund, insurance or indemnity. {paragraph 20-25(1)(a)J

33


Balancing charge amounts are not recoupment.

What if the amount you receive is recoupment of a loss or outgoing to an unspecified extent?

The following amounts will also be within the definition: a grant in respect of a loss or outgoing. {paragraph 20-

25(1)(b)J;

• amounts paid on the taxpayer's behalffor a loss or outgoing. {subsection 20-25(2)J; and

• an amount received for disposing of a right to recoupment. {subsection 20-25(3)J

Recoupment does not extend to an amount received on disposal, loss or destruction of property to which the loss or outgoing relates. A balancing charge on disposal, loss or destruction of such property is expressly excluded. {subsection 20-25(5)J

The amount is taken to be recoupment to the extent that is reasonable. {subsection 20-25(4)J

Deductions for which recoupments (except insurance and indemnity amounts) are assessed under Subdivision 20-A

The rule is Recoupment amounts (except insurance or indemnity amounts) are only assessed by Subdivision 20-A if the amount is received for certain deductible losses or outgoings. {subsection 20-20(3)J

These deductions {listed in section 20-30J currently have specific recoupment rules.

On the other hand, Subdivision 20-A will assess insurance and indemnity amounts received for any deductible loss or outgoing, including those listed in section 20-30. {subsection

20-20(2)J

Recoupment amounts will generally be assessable income

The general rule is Any assessable recoupment received for a loss or outgoing will be included in assessable income. {subsections 20-35(1)

and 20-40(l)J The amount included may be limited.

How much of the recoupment is assessable?

The rule is

34

There is a limit on the total of assessable recoupments to be included in assessable income at any given time. The limit is the total amount of the loss or outgoing that can be or has been deducted at that time. {subsections 20-35(2) and 20-40(2)J

I

I

• •

• •

• •

What if the loss or outgoing is deductible over 2 or more income years?

What if a recoupment is received before the income year in which the loss or outgoing can be deducted?

What is the effect of a balancing charge?

What if the recoupment is for a loss or outgoing of which only a proportion is deductible?


These cases are dealt with separately [section 20-40/ to distinguish them from the more common single year deduction case. [section 20-35/

The limit on how much is assessable is particularly important for losses or outgoings deductible over 2 or more income years. Any part of an assessable recoupment that is not included in assessable income in the year of receipt because of this limit will be assessed when further amounts are deducted for the expense.

The limit takes into account amounts included in your assessable income under a previous recoupment law. This defined term refers to provisions in the existing law that assess recoupment amounts. [section 20-55/

If the amount is deductible in a single income year, the assessable recoupment is included in assessable income in the year the loss or outgoing is deducted. [subsection 20-35(3)/

If the amount is deductible over more than one year, an amount will be assessed in the first year a deduction is allowed for the loss or outgoing. The most that will be included in assessable income in that year is the amount you claimed as a deduction for the year. [section 20-40/

If an amount is assessable under a balancing adjustment provision, the limit on how much can be assessed is reduced by that balancing charge. [section 20-45/

This prevents the double recovery of deductions.

You are treated as only receiving that proportion as recoupment in working out how much of the recoupment is assessable under the recoupment clauses. {section 20-50/

35


B. Discussion of changes

Subdivision 20-A Insurance, indemnity or other recoupment for deductible expenses

36

Change This Subdivision will consolidate 23 recoupment provisions in the existing law in one place.

Explanation The provisions in the 1936 Act which specifically deal with recoupment of deductible expenses are spread throughout that Act. These provisions take one of two main approaches:

• assessing the compensation in the year in which it is received (the assessing approach); or

• reducing or denying the deductions allowed for the recouped expense (the reduction of deductions approach)

The disadvantages of this are:

• the scattering of the compensation provisions throughout the Act makes them hard to find;

• the repetition of the two basic approaches takes up unnecessary text; and

• the approach taken is not consistent.

These provisions have been consolidated in Subdivision 20-A, where a uniform assessing approach will treat recoupment amounts.

This will produce a significant reduction in compliance and administration costs because:

• there will no longer be a need to amend assessments of previous years, as is the case with the 'reduction of deductions' approach; and

• the new law is simpler, easier to find, and much shorter than the existing provisions.

The consolidation of differing rules has necessitated some changes. The rest of this Part explains the consolidated rules and how they differ from the existing law.

Structure of the Subdivision

The Subdivision is structured in two parts. The first tells the reader whether they have an assessable recoupment. [sections 20-20 to 20-30/ The second determines how much of an assessable recoupment is assessed. [section 20-35 to 20-55/

• •

• •

• •

• •


Section 20-20 Assessable recoupment

This section explains what amounts will be assessed by Subdivision 20-A.

Change The section will clarify the law by establishing a three step process for determining whether a recoupment of a deductible expense is assessable.

Explanation In the existing law:

• a recoupment is assessable income under the general income provision if it is ordinary income (subsection 25(1 »;

• an insurance recovery or indemnity for any deductible loss or outgoing is assessable income (paragraph 26(j»; and

• there are specific recoupment provisions applying to particular deductions.

The relationship between these rules is unclear. The Bill will establish a three-step process to clarify the linkages.

The three-step process is:

1. Is the amount assessable income outside Subdivision 20-A? If so, the amount is assessed under the provision which includes the amount in assessable income and will not be an assessable recoupment under Subdivision 20-A. For example, if the amount is ordinary income, it will be assessed under section 6-5 of the pending 1996 Act.

2. Is the amount an insurance recovery or indemnity for any deductible loss or outgoing? If so, it is an assessable recoupment under Subdivision 20-A.

3. Is the amount a recoupment (except an insurance or indemnity) of a loss or outgoing that is deductible under a provision listed in section 20-30? If so, it will also be an assessable recoupment.

Section 20-25 What is recoupment?

The section establishes that the following amounts are recoupment: • any kind of recoupment, reimbursement, refund, insurance, indemnity or

recovery, however described; • a grant in respect of a loss or outgoing; • amounts paid on the taxpayer's behalf for a loss or outgoing; and • an amount received for disposing of a right to recoupment.

Amounts received on the disposal, loss, destruction or termination of use of property to which a loss or outgoing relates are not recoupment of that loss or outgoing.

37


38

1. Change This section makes clear the main types of compensation that are within the defined term.

Explanation In the existing law, the recoupment provisions vary widely in describing the types of compensation covered.

The new definition of recoupment gives a consistent approach by expressly covering recoupments, reimbursements, refunds, insurance recoveries, indemnities, amounts recovered and grants in respect of a loss or outgoing.

2. Change There will be a standard rule that amounts received for disposing of a right to recoupment will be treated as recoupment.

Explanation Disposal of a right to recoupment is covered in only one recoupment rule in the existing law (subsection 70A(6) dealing with mains electricity connection expenditure) but is subject to the capital gains and losses provisions (Part IIIA).

This change will ensure that all amounts which take the place of recoupment are treated in the same way. This is important to ensure equitable treatment and to prevent avoidance.

The disposal of a right to be recouped need not be to another entity. Therefore, the new section includes any method of giving up such a right, ego surrender, forfeiture, release, abandonment or expiry.

So far as the amount received for disposing of the right is assessable, subsection 160ZA(4) of the existing law will prevent double taxation by reducing the amount of any capital gain. If the amount received is assessable in full, there will be no capital gain.

3. Change There will be a standard apportionment rule for amounts that are recoupments to an unspecified extent. They will be taken to be recoupments of a loss or outgoing to the extent reasonable.

Explanation In the existing law, most specific recoupment provisions (e.g. subsections 70A(8) and 7SAA(9» contain an apportionment rule. In many of these, an amount received is taken to be a recoupment to the extent the Commissioner decides.

The standard rule will apply to all assessable recoupments under Subdivision 20-A and will use a reasonableness test.

4. Change The section will clarify that, if a balancing adjustment is required for property on which a loss or outgoing was incurred, no part of any balancing charge is a recoupment.

• •

• •

• •

• •


Explanation Any amount received due to the disposal, loss, destruction or termination of use of property effectively recovers losses or outgoings incurred on the property. However, generally they are not truly compensation for the loss or outgoing on the property, but relate to the current value of the property.

These amounts are not to be treated as recoupment under Subdivision 20-A. In certain cases balancing adjustment provisions specifically deal with the disposal, loss, destruction or termination of use of the property .

Section 20-35 Recoupment of expenses fully deductible in a single income year

Section 20-40 Recoupment of expenses fully deductible over more than one income year

These sections uniformly assess amounts that are assessable recoupments, ie. insurance and indemnity amounts for any deductible expense; and other recoupment amounts for expenses deductible under a provision listed in section 20-30.

1. Change There are separate sections dealing with expenses deductible in a single income year and for expenses deductible over more than one income year.

Explanation The rules in the single year case are more simply expressed than in the multiple year case. Therefore, for most who recoup an expense deductible in a single year, the more complex rules for multiple year deductions can be ignored.

2. Change The new provisions adopt a uniform approach of assessing recoupment, generally in the year the amount is received.

Explanation The effect of this change is discussed at the start of this Part of this chapter.

Adopting a uniform assessing approach can have some effect on taxpayers' liabilities.

Where a recoupment provision currently uses the 'reduction of deductions' approach, the net effect will depend on marginal tax rates from year to year.

If the marginal tax rate is lower in the year an amount is assessed compared to the year the deduction is allowed, a minor benefit will accrue under the new law. If the marginal tax rate is higher in the year an amount is assessed compared to the year the deduction is allowed, there will be a minor cost.

39


The change to an assessing approach from the 'reduction of deductions' approach may also see some amounts brought to account earlier where a loss or outgoing deductible over two or more years is partially recouped.

3. Change Recoupment amounts will be assessed up to the amount that can be or has been deducted for the loss or outgoing up to the current year.

Explanation This will mean that at the end of any income year, the sum of recoupments assessed for a particular loss or outgoing will not exceed the total amount that can be or has been deducted for that loss or outgoing. The total sum of recoupments assessed includes amounts assessed under provisions of the existing law that used the 'assessing' approach. These provisions are covered by the new defined term previous recoupment law.

This approach has been adopted because the object of the Division is to recover only the benefit of the deductions for which no net detriment has been suffered.

Example See example at subsection 20-40(2).

Section 20-45 Effect of a balancing charge

Under the recoupment provisions (sections 20-35 and 20-40), the total amount of deductions allowed for an outgoing is reduced by any amount assessed under a balancing adjustment.

Change This section provides a standard treatment for amounts assessed as a balancing charge, preventing double recovery of deductions.

Explanation This change was required as a result of the change to a uniform assessing approach for recoupment amounts.

The assessment of an amount under a balancing adjustment provision

• •

recoups the deductions allowed for that amount. In each case in the existing • law where a balancing charge may interact with a recoupment, the 'reduction of deductions' approach applies to the recoupment. No treatment of

40

balancing charges is required under this approach.

This is taken into account under section 20-45 by reducing the total deductions that are eligible to be recouped under the recoupment provisions by the amount assessable under the balancing adjustment provision. •

Section 20-45 applies if there is a balancing charge for the income year a recoupment is assessable, or for an earlier income year.

• •


Example See example at section 20-45.

Section 20-50 Recoupment of partially deductible losses or outgoings

The section applies where the total amount that can be deducted for a loss or outgoing cannot exceed a proportion of the loss or outgoing. In this case, only that proportion of a recoupment is treated as being received for the purposes of determining how much of the recoupment is assessable.

Change This rule will apply in all cases where the total amount that can be deducted for a loss or outgoing is a proportion of that loss or outgoing.

Explanation Where the 'reduction of deductions' approach applies to the recoupment of proportionate deductions in the existing law (eg. development allowance and drought investment allowance), the same result is achieved.

Section 20-50 will ensure that all proportional deductions are recouped in a proportional way. The section will apply in all cases where the deduction that can be claimed cannot exceed the amount of the expense that gives rise to the deduction. Without this rule, taxpayers could be treated as recouping the deductible part of the expenditure first.

Example See example at section 20-50.



Provisions not to be rewritten Subsections 75AA(10), 82BE(3), 82BP(3), 124BD(3) and 124ZZN(3) will not be rewritten. These all provide for an unlimited amendment period for recoupment provisions that use the 'reduction of deductions' approach.

Reason for omission Section 170 of the 1936 Act generally prescribes a four year limit on amending previous assessments. However, recoupment amounts could be received many years after the initial expenditure. This meant that this limit had to be specifically overridden in each case where a recoupment provision used the 'reduction of deductions' approach. In some cases this was done in subsection

41


170(10). In the cases listed above, a subsection was added to the particular recoupment provision.

There is no need to amend previous assessments under the assessing approach adopted in Subdivision 20-A. This makes all the specific subsections listed above redundant.

D. Transitional arrangements

Part 1 of Schedule 8 of the Tax Law Improvement Bill 1996 will amend the pending Income Tax (Fransitional Provisions) Act 1996 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.

Part 1 will insert in the pending Income Tax (Fransitional Provisions) Act 1996 new Subdivision 20-A. New Subdivision 20-A will set out how and when the rewritten sections will apply.

The rewritten provisions will apply to recoupment amounts received in the 1997-98 or later income years [Schedule 8, Part 1: subsection 20-1(1), pending

Transitional Provisions Act}. They will also apply to amounts that are deemed by the existing law to be recouped in the 1997-98 income year [Schedule 8, Part 1:

subsection 20-1(2), pending Transitional Provisions Act}.

In some cases, however, it is necessary that some recoupment provisions of the 1936 Act apply to assessments for the 1997-98 and later income years when those provisions deal with recoupments that were received before the 1997-98 income year [Schedule 8, Part 1: section 20-5, pending Transitional Provisions Act}.

These provisions are 'reduction of deductions' recoupment provisions that apply to expenditure deductible over more than one year. Under these provisions, a recoupment may still affect a deduction in the 1997-98 income year or a later income year, even if the initial expenditure was incurred, and the recoupment was received, before the 1997-98 income year.

E. Consequential amendments

Amendments of the pending Income Tax Assessment Act 1996 •

42


Subdivision 20-A; • repeal sections of the 1996 Act that deal with recoupment; • • take amounts assessed under Subdivision 20-A into account in calculating

amounts assessable under a balancing adjustment; and


insert additional definitions in the Dictionary in section 995-1 oftenns used in the rewritten provisions.

Updated references

There are currently a number of references in the pending 1996 Act to existing recoupment provisions. Most of these are in section 10-5, which contains a list of all the provisions of both the existing and rewritten law that deal with particular kinds of assessable income.

Part 2 of Schedule 8 will bring the list in section 10-5 up to date by taking into account the new approach to recoupment in Subdivision 20-A.{Schedule 8, Part 2: items 2 to 23J

Part 2 of Schedule 8 will also update other references in the pending 1996 Act to existing recoupment provisions that have been rewritten in Subdivision 20-A, so that the reference is to the rewritten provisions. {Schedule 8, Part 2, item25J

Repeal sections dealing with recoupment

Sections 41-45 and 330-585 of the pending 1996 Act deal with recoupment. These provisions have been consolidated in, or have been made redundant by, Subdivision 20-A. Therefore Part 2 of Schedule 8 will repeal these provisions. {Schedule 8, Part 2, items 24 and 27J

Take account of Subdivision 20-A in a balancing adjustment provision

Under subsection 330-485(2) of the pending 1996 Act, an amount to be included in assessable income under a balancing adjustment provision for mining and quarrying expenditure is limited to amounts covered by paragraph 330-480(1)(a) of the 1996 Act. That paragraph broadly covers amounts deductible' under Subdivision 330-A, 330-C, 330-H or a corresponding previous law.

Part 2 of Schedule 8 will amend subsection 330-485(2) to reduce the limit by any recoupment amount included in assessable income by Subdivision 20-A {Schedule 8, Part 2, item 26]. This will apply if a recoupment amount is assessed in an income year before the balancing adjustment is required.

Subdivision 20-A will assess amounts ofrecoupment for a deductible loss or outgoing. As this will nullify deductions allowed to that extent, it is necessary to reduce the limit in subsection 330-485(2).


Part 2 of Schedule 8 will insert new definitions of tenns used in the rewritten provisions.

New Definition: Assessable recoupment. {Schedule 8, Part 2, item 28J

Commentary: An explanation of this tenn is provided in this chapter, at Part A (Assessable recoupments - the amounts Subdivision 20-A will assess), and at Part B, section 20-20 (Assessable recoupment).

43


New Definition: Current year. {Schedule 8, Part 2: item 29J

Commentary: This tenn is used in sections 159S, 159ZR and 221AZH of the existing law. In these provisions, it means either the year of income for which rebates are being calculated or the year of income for which instalments are being calculated.

In the new law, the tenn will refer to the income year for which assessable income and deductions are being worked out. This tenn makes clear the distinction between that year, earlier income years and future income years.

New Definition: Previous recoupment law. {Schedule 8, Part 2: item 30J

Commentary: This is a new tenn which perfonns a transitional function. It refers to provisions in the existing law that assess recoupment amounts. The definition is necessary because of Subdivision 20-A's approach oflimiting the total recoupments assessed for a particular expense to the deductions allowed so far for that expense. This defined tenn takes account of amounts assessed under recoupment provisions in the 1936 Act.

New Definition: Recoupment. {Schedule 8, Part 2: item 31J

Commentary: An explanation of this tenn is provided in this chapter, at Part A (What is recoupment?), and at Part B, section 20-25 (What is recoupment?).


The amendments made by Part 2 of Schedule 8 apply to assessments for the 1997 -98 and later income years {clause 4, Tax Law Improvement BillJ. This ensures that these consequential amendments take effect at the same time as other amendments relating to the recoupment provisions.


Part 3 of Schedule 8 to the Bill will amend the. 1936 Act to: • add references to Subdivision 20-A where the 1936 Act currently refers to

the existing provisions; and • close off the application of provisions of the 1936 Act that have been

rewritten in Subdivision 20-A, so that the existing provisions apply only to recoupments received in the 1996-97 and earlier income years.

Adding references to rewritten provisions

44

Part 3 of Schedule 8 will add in the 1936 Act references to Subdivision 20-A where the 1936 Act currently refers to the existing provisions {Schedule 8, Part 3:

items 33 and 37 to 39]. References to Subdivision 20-A are being added because the provisions being consequentially amended can apply to amounts relating to more than one income year (including an income year before the 1997-98 income year).

• •



Part 3 of Schedule 8 will insert new provisions into the 1936 Act to close off the application of existing provisions rewritten or made redundant {Schedule 8, Part 3:

items 32,34 to 36 and 40 to 51}. Part 3 of Schedule 2 will also close off the application of paragraphs 260) and 26(k), to the extent they deal with recoupment {Schedule 2, Part 3: item 20}.

In these cases, the existing provisions are being closed off so that they only apply to recoupments received in the 1996-97 and earlier income years. This complements the transitional provisions in Part 1 of Schedule 8 which ensure that the corresponding rewritten provisions apply to recoupments received in the 1997 -98 and later income years.


The amendments made by Part 3 of Schedule 8 apply to assessments for the 1997 -98 and later income years {clause 4, Tax Law Improvement Bill}. This ensures that these consequential amendments take effect at the same time as other amendments relating to the recoupment provisions.


Part 4 of Schedule 8 to the Bill will amend the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 to add a reference to Subdivision 20-A, where the Act currently refers to the existing provisions. {Schedule 8, Part 4: item 52}


The amendments made by Part 4 of Schedule 8 apply to assessments for the 1997 -98 and later income years {clause 4, Tax Law Improvement Bill}. This ensures that these consequential amendments take effect at the same time as other amendments relating to the recoupment provisions .

45

• •

• •

Leased Cars

This chapter explains the rewritten provisions about the income tax treatment of profits made on the sale of previously leased cars.

Those provisions are contained in new Subdivision 20-B in Schedule 1 to the Tax Law Improvement Bill 1996.


Leased Cars



• the rewritten provisions in Subdivision 20-B in Schedule 1 to the Tax Law Improvement Bill 1996. These constitute Subdivision 20-B of the pending 1996 Act; and

• the related transitional provisions and consequential amendments in Schedule 7.

Subdivision 20-B deals with profits on the sale of previously leased cars. The corresponding provision of the 1936 Act is section 26AAB.

Part A of this chapter summarises new Subdivision 20-B of the 1996 Act.

Part B explains changes proposed to the content of the current provisions.


Part D explains the transitional provisions in Part 1 of Schedule 7 which set out how, and from when, the rewritten provisions will apply.

Part E explains amendments that need to be made to the 1936 Act and the pending 1996 Act because of the rewriting of the 1936 Act provisions. These amendments are in Parts 2 and 3 of Schedule 7.


Guide to Subdivision 20-B

Purpose of the Subdivision

48

Subdivision 20-B explains how an amount can be included in assessable income if it is a recoupment of deductible lease payments for a car that has been sold.

Normally, a profit on a car sale is a non-assessable capital gain.

However, if the car has been leased, a portion of the profit may be a recoupment of deductible lease payments and therefore will be assessed as income.

Subdivision 20-B deals separately with common situations in which it can apply (the usual case) and with less • common situations of transactions where associated parties are involved.

Leased Cars

The more common case

This is where:

In this case:

What is a profit?

There is a limit on how much profit is included

If there is more than one lease:

What is notional depreciation?

Less common cases

• a car is leased to a taxpayer; • the lease payments are paid or payable by that taxpayer

and deductible to anyone; and • that taxpayer buys the car from the lessor and disposes

of it for a profit.

The profit is included in that taxpayer's assessable income. (section 20-110J

It is the consideration for the disposal, less: • the acquisition cost to you; and • any capital expenditure you incurred. (section 20-115J

The limit is the smaller of: • the deductible lease payments for the lease; and • the notional depreciation for the lease period. (subsection

20-110(2)]

The limit is increased to take account of deductible lease payments and notional depreciation under all leases from the same lessor. (subsections 20-110(3) and 20-125(3)]

Successive leases of the same car can produce separate limits on the profit to be included in assessable income. Only the largest of those amounts is included. (section 20-130J

It is the car's cost to the lessor, less the consideration the lessor obtained from disposing of it, multiplied by:

days in the lease period

days the lessor owned the car

(section 20-120J

These involve associates The principles are the same as in the usual case, but cover situations where:

• the car was leased to an associate of the taxpayer; or • the associate (whether alone or not) acquired the car

from the lessor; or • someone else acquired the car under an arrangement

which enabled the taxpayer or an associate to acquire it. (section 20-125J

49

Leased Cars

In these cases, there is another limit on how much profit is included in assessable income

This is the difference between: the consideration for disposing of the car; and

• the cost of the car to the entity to whom the lessor disposed of it plus any capital expenditure that entity incurred on the car. {paragraph 20-125(2)(c)J

Exceptions and reductions

In some cases, none of the profit is included in assessable income

In some cases, the amount to be included in assessable income is reduced

These are where: • you inherited the car {section 20-145J; or • the lease was:

(a) a hire purchase agreement; or (b) a normal short term hire; {section 20-/55J or

• after the lessor disposed of it and before you did, there was an intervening disposal by someone else which: (a) was for market value or more; or (b) caused an amount, based on market value to be

included in that person's assessable income. {section

20-135J

These include where: • an intervening disposal by the taxpayer or anyone else

has already resulted in an amount being assessed {section

20-140J; or • another provision includes an amount in the taxpayer's

assessable income because of the current disposal {section 20-150].

Disposals of interests in cars

There are special rules for the disposal of an interest in a car

50

Subdivision 20-B applies as it would to a disposal of the car but with these modifications:

• there are no fixed limits on how much profit is included -a reasonable proportion is included;

• the cost is also a reasonable amount; and • disregard any previous disposal of the car. {section 20-160J •

•

• •

Leased Cars


Removing discretions

The administrative discretions in section 26AAB use the term 'an amount determined by the Commissioner'. These are being replaced by objective tests based on reasonableness, e.g. the inclusion of a 'reasonable amount'. This material does not comment further on those changes.

Structure

Subdivision 20-B will deal first with the usual case, which should cover most disposals of leased cars. Consequently, most readers will not need to consider the more complex parts of the Subdivision.

There are some special rules dealing with multiple disposals and multiple leases of the same car and with disposals of interests in a car.

Terminology

Cars - The Subdivision will apply to a disposal of a car instead of a motor vehicle, which is the expression used in section 26AAB. Although the definition is a little different, car has essentially the same meaning as motor vehicle did in section 26AAB.

Associates - The term associate is used frequently in this Subdivision and throughout the 1936 Act. Instead of using many different definitions of the word, the new law will use a standard definition.

The differences between the new definition and that in section 26AAB are:

• in the new definition, a company is an associate of another entity if it 'might reasonably be expected' to act in accordance with the wishes of the other entity, even if the company is not accustomed, or obliged, to so act (including where those wishes are communicated through interposed companies, partnerships or trusts;

• a spouse living separately and apart from the taxpayer on a permanent basis is not an associate under the new definition; and

• the new definition includes rules for identifying associates of public unit trusts.

These differences are minor and have no significant effect on the treatment of leased cars .

51

Leased Cars

Section 20-115 Working out the profit on the disposal

This section states how to work out the profit on a disposal of a car. It is the consideration receivable on disposal, less the cost of the car and any capital expenditure on the car after it was acquired.

Change Subsection 20-115(2) will add, to the list of things that are consideration receivable, an amount receivable under an insurance policy if the car is lost or destroyed.

Explanation This change will ensure consistency in the treatment of insurance proceeds and sales proceeds. This accords with the way the law is administered.

Section 20-120 Notional depreciation

52

This section sets out how to work out the notional depreciation for a car. Notional depreciation is one of the elements in establishing how much of the profit is assessable on disposal of the car.

Commentary Section 26AAB works out the notional depreciation by first taking how much the lessee could have deducted for depreciation if the lessee had owned the car instead of leasing it. That amount is the difference between its original cost to the lessor and what its written down value would have been when the lessor disposed of it.

Then, an adjustment is made to reflect the difference between the written down value and the lessor's disposal price. If the disposal price is above the written down value, the balancing adjustment reduces the depreciation. If the disposal price is less than the written down value, the balancing adjustment increases the depreciation.

In either case, to obtain the notional depreciation, pro-rate the depreciation amount to reflect the period the lessee leased the car.

The rewrite will simply subtract the disposal price from the lessor's original cost before pro-rating the result. This produces the same mathematical outcome as section 26AAB, but more simply.

This relies on the premise that notional depreciation under section 26AAB is calculated as if the lessee had used the car only for income producing purposes. That is the generally held view of how section 26AAB works and is how the Commissioner administers it.

•

• •

Leased Cars



The Bill will not rewrite subsection 26AAB( 18), which defines market value to mean what the Commissioner thinks is reasonable if there is insufficient evidence of market value.

The courts have been able to find a market value, even for items in which there are no current dealings, by assuming that there are willing buyers and sellers.

D Transitional arrangements

Part 1 of Schedule 7 to the Tax Law Improvement Bill 1996 will amend the Income Tax (Transitional Provisions) Act 1996 to insert Subdivision 20-B, containing the transitional provisions for the rewritten provisions discussed earlier in this chapter. That Subdivision will set out how, and when, the rewritten provisions will apply.

The rewritten provisions in Subdivision 20-B of the pending 1996 Act will apply to assessments for the 1997-98 and later income years [Schedule 7, Part 1: section 20-100, pending Transitional Provisions Act/.

In some cases, it is necessary to specify in the transitional provisions how the rewritten provisions apply in the 1997-98, or a later, income year if certain events happen before that time. Those events are set out in this table:

Transitional Event that can happen before the Treatment section 1997-98 income year

20-105 Lessor acquires the car. The' cost' of the car is worked out under the 1936 Act.

20-110

20-1I5

Lessor disposes of the car.

A previous disposal of the car or an interest in it.

The car's tennination value is what was the lessor's 'consideration receivable' under the 1936 Act.

The limits on the assessable profit are reduced by the same reductions as would have been made under the 1936 Act.

53

Leased Cars


Amendment of the pending Income Tax Assessment Act 1996

Part 2 of Schedule 7 to the Bill will amend the pending 1996 Act to:

• update a reference to section 26AAB that has been rewritten in Subdivision 20-B; and

• insert additional definitions in the Dictionary in section 995-1 of terms that are used in the rewritten provisions.

Updated reference

Section 10-5 of the 1996 Act lists all the provisions of both the existing and rewritten laws that deal with particular kinds of assessable income. Part 2 of Schedule 7 to the Bill will replace the reference to section 26AAB in that list with a reference to Subdivision 20-B.{Schedllle 7, Part 2: item 2}


Part 2 of Schedule 7 will also insert new definitions of terms used in the rewritten provisions in Subdivision 20-B.

New Definition: Notional depreciation for a lease period. {Schedllle 7, Part 2: item3}

Commentary: A new label for the existing term 'the amount of depreciation that is deemed in accordance with subsection (6) to have been allowable to the lessee in respect of the unit of property'. How the definition has been simplified is discussed under 'section 20-120, notional depreciation' in Part B of this chapter.

New Definition: Profit on the disposal of a leased car. {Schedllle 7, Part 2: item4}

Commentary: A label for an idea already in the 1936 Act.

Part 2 of Schedule 5 will insert a new definition of 'consideration receivable', a term also used in the rewritten provisions in Subdivision 20-B. A change to that term is discussed under 'section 20-115, working out the profit on the disposal' in Part B of this chapter.


54

The consequential amendments made by Part 2 of Schedule 7 generally apply to assessments for the 1997-98 and later income years {clallse 4, Tax Law Improvement

BiII1996J. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to disposals of leased cars.

• •

• •

• •

Leased Cars

Amendment of the Income Tax Assessment Act 1936

Part 3 of Schedule 7 to the Bill will amend the 1936 Act to: • insert a reference to Subdivision 20-B where the 1936 Act currently refers

to section 26AAB; and • close off the application of section 26AAB of the 1936 Act, now rewritten

in Subdivision 20-B, so that section 26AAB applies only to the 1996-97 and earlier income years .


Part 3 of Schedule 7 will add a reference to Subdivision 20-B of the 1996 Act in section 170 of the 1936 Act. Section 170 currently refers to section 26AAB. {Schedule 7, Part 3: item 7J

This dual reference to the existing and the rewritten provision is required because section 170:

• has not yet been rewritten and closed off; and • can apply to assessments for income years both before and after the 1997-

98 income year.


Part 3 of Schedule 7 will amend the 1936 Act to close off the application of section 26AAB so that it only applies to disposals in the 1996-97 and earlier income years. {Schedule 7, Part 3: items 5, 6J


The consequential amendments made by Part 3 of Schedule 7 generally apply to assessments for the 1997-98 and later income years {clause 4, Tax Law Improvement

Bill1996J. This ensures that they take effect at the same time as the substantive amendments relating to disposals of leased cars .

55

I

•

(

•

I

• •

Deductions: particular items

This chapter explains the rewritten provisions that allow or disallow particular deductions from a taxpayer's assessable income.

These provisions are contained in new Divisions 25, 26 and 34 in Schedule 1 to the Tax Law Improvement Bill 1996.




This chapter covers: I • the rewritten provisions in Divisions 25,26 and 34 in Schedule 1 (some amounts

you can deduct; some amounts you cannot deduct; or cannot deduct in full, and noncompulsory uniforms) to the Tax Law Improvement Bill 1996; and

• the transitional provisions and consequential amendments for those rewritten I provisions contained in Schedule 4 to the Bill.

Divisions 25, 26 and 34 contain the rewritten provisions of the 1936 Act which set out the rules about deductions that apply to taxpayers generally. The rules are of two kinds:

• rules which allow deductions for various expenses; and • rules that prevent or limit deductions for some amounts.

The corresponding provisions of the 1936 Act are sections 6G, 51AB, 51AG, 51AL, 52, 53, 53AA, 63, 64, 64A, 65, 67, 67A, 68, 69, 71, 72, 73, 74, 74B and subsections 51(3) to (6A), and 78(11). These rules operate in the framework established by the core provisions about deductions contained in Division 8 of the pending 1996 Act.

Part A of this chapter summarises new Divisions 25, 26 and 34.



Part D explains the transitional provisions which set out how and when the rewritten provisions will apply. These provisions are located in Part 1 of Schedule 4 to the Bill.

Part E explains the amendments that need to be made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, as a consequence of the rewriting of the provisions of the 1936 Assessment Act. These provisions are located in Parts 2 to 4 of Schedule 4 to the Bill.


Guide to Division 25: Some amounts you can deduct

What the Division will do

Tax-related expenses

Repairs

58

Division 25, which will apply to taxpayers generally, will allow deductions for the following amounts.

Expenditure incurred for managing tax affairs or interest paid for the underpayment or late payment of tax. {section 25-5J

Expenditure incurred on repairs. {section 25-10J

• •

• •


Amounts for a lease Amounts paid for failing to comply with a lease obligation to repair obligation to repair premises. {section 25-15}

Lease document Expenditure incurred for preparing, registering, stamping, assigning or expenses surrendering a lease. {section 25-20J

Borrowing expenses Expenditure incurred for borrowing money. These amounts normally will only be able to be deducted over 5 years. {section 25-25}

Expenses of Expenditure incurred in discharging a mortgage. {section 25-30}

discharging a mortgage

Bad debts

Losses from a projitmaking undertaking

Loss by theft etc.

Pensions, gratuities and retiring allowances

Payments to associations

Debts written off as bad if the debt was included in assessable income or was lent in the ordinary course of a business of lending money. {section 25-35}

A loss arising from a profit-making undertaking if any profit from an undertaking or plan would have been included in assessable income, and the loss does not arise from the sale of property acquired on or after 20 September 1985. {section 25-40}

A loss in respect of money caused by theft or embezzlement by an employee or agent. {section 25-45}

Payments of a pension, gratuity or retiring allowance to an employee or former employee. [section 25-50J

Amounts of up to $42 for membership of a trade, business or professional association. {section 25-55} This provision does not affect the amount that can be deducted under the general deduction provision.

Parliament election Amounts incurred in contesting an election for membership of any expenses Australian Parliament {section 25-60}, other than, with two exceptions,

entertainment expenditure {section 25-70} .

Rates and land taxes on premises used to produce mutual income

Clubs and other entities receiving amounts from members can deduct rates and land taxes as if those receipts were assessable income. {section 25-75}

Guide to Division 26: Some amounts you cannot deduct, or cannot deduct in full

What the Division Division 26, which will apply to taxpayers generally, sets out some will do amounts that taxpayers will not be able to deduct, or not be able to

59


Penalties

Leave payments

deduct in full. This will be the case even if such amounts could otherwise be deducted under the general deduction provision in section 8-1 of the pending 1996 Act or a specific deduction provision.

Amounts payable by way of penalty or on conviction for an offence. {section 26-5/

A loss or outgoing for leave unless the amount has been paid to the individual concerned or it is an accrued leave transfer payment. {section 26-10/

HECS and student Specific payments under the Higher Education Funding Act 1988 or the assistance Student Assistance Act 1973. {section 26-20/

payments

Relative's travel expenses

Amounts paid to related entities

Maintaining a family

Club expenses

Leisure facilities and boats

Amounts incurred for a relative's travel expenses in some circumstances. {section 26-30/

If an amount is paid to a relative, or a partnership in which a relative is a partner, only so much of the payment as the Commissioner considers reasonable can be deducted. {section 26-35J

Expenditure incurred for maintaining a taxpayer's family. {section 26-40J

A loss or outgoing incurred for membership of a club. {section 26-45/

With some exceptions, expenses for acquiring or using leisure facilities and boats cannot be deducted. {section 26-50J

Guide to Division 34: Non-compulsory uniforms


60

Division 34 will provide that expenses for a non-compulsory uniform cannot be deducted unless the design of the uniform is registered. The Division will not apply to occupation specific clothing or protective clothing (subsection 34-10(3)]. The Division will set out how a uniform can be registered.

• •



• Commissioner's discretions to be replaced with objective tests

Change

•

• •

Rules which rely on Commissioner's discretions will be replaced with clear objective tests .

Explanation As rewriting of the income tax law proceeds, many of the discretions that the Commissioner of Taxation may exercise are being removed or replaced with objective tests. This allows the new law to more fully reflect the principles of the self assessment system.

The following changes are being made in the context of reviewing the deduction provisions (references are to the1936 Act):

Provision

5IAB(l)

5IAB(5)

53(3)

67(4)

67A(b)

Subject

Leisure facilities and boats. Subparagraph (b )(iii of the definition of' excepted facility' requires the taxpayer to satisfy the Commissioner that the use of a boat was essential to the efficient conduct of the business.

Leisure facilities and boats. Subsection 5IAB(5) requires the Commissioner to determine a reasonable amount that can be deducted if the leisure facility or boat is used partly for purposes covered by an exception to the provision.

Repairs. Subsection 53(3) provides that so much only of the expenditure as, in the opinion of the Commissioner, is reasonable can be deducted if the expenditure is incurred in repairing property that is only partly held or used for the purpose of producing assessable income.

Borrowing expenses. Subsection 67(4) provides that the taxpayer is deemed to have incurred so much only of the expenditure as, in the opinion of the Commissioner, is reasonable if expenditure is incurred only partly for the purpose of producing assessable income.

Expense of discharging mortgages. Paragraph 67A(b) provides that only such amount as the Commissioner determines can be deducted if money or property is only partly used for the purpose of producing assessable income.

How replaced

Replaced with an objective test. {paragraph 26-50(5)(d)J.

Replaced with a reasonable test. {subsection 26-50(6)]

Replaced with a reasonable test. {subsection 25-10}

Replaced with a 'to the extent' rule. {section 25-25}

Replaced with a 'to the extent' rule. {subsection 25-30(3)]

61


68(b)

72(IC)

Lease document expenses. Paragraph 68(b) provides that only such an amount as, in the opinion of the Commissioner is reasonable can be deducted if property is to be, or has been, held by the taxpayer only partly for the purpose of producing assessable income.

Rates.and land taxes. Subsection 72(lC) provides that only such amount as, in the opinion of the Commissioner, is reasonable can be deducted if the land or premises are only partly used for the purpose of producing income.

Replaced with a 'to the extent' rule. {subsection 25-20(2)f

The provision for rates and land taxes incurred in producing mutual income will replace the reasonable test with a 'to the extent' rule. {subsection 25-75(J)f

Consolidation of recoupment provisions

Change There are several provisions that require amounts to be included in assessable income if a reimbursement is received for an expense that can be deducted or has been deducted. The majority of these provisions will be replaced by a consolidated recoupment provision {Subdivision 20-A{ which will eliminate unnecessary duplication.

Explanation These are only changes of a drafting nature and will not affect the current application of these provisions.

Reimbursement provisions are contained in the deduction provisions dealing with bad debts, tax related expenses, rates and land taxes and Parliament election expenses (subsections 63(3), 69(8), 72(2), and 74(2) of the 1936 A~t). Subdivision 20-A is discussed in further detail in Chapter 3.

Standardisation of provisions denying and limiting deductions

62

Change The provisions that deny or limit a deduction will be drafted in a uniform way, by stating that some amounts cannot be deducted under the pending 1996 Act.

Explanation This is only a drafting change which will not modify the application of the law. The change will make the structure of the law simpler and more consistent. Provisions that deny or limit a deduction are expressed in several different ways, which have no practical distinction.

Some provisions say that deductions cannot be claimed under the general deduction provision. For example, subsection 51 (6) says that payments made in respect of higher education contributions cannot be deducted under the

• I

• •

• •

• •


general deduction provision. Yet this type of expense would only be deductible under the general deduction provision. To state that the expense cannot be deducted under any provision of the pending 1996 Act will not change the operation of the law.

Other provisions disallow deductions under all provisions. Section 51 AL, which denies deductions for unregistered non-compulsory uniform expenses, is an example of this .

Omission of unnecessary words about when an amount is deductible.

Change Usually, the deduction provisions will state specifically that an expense can be deducted in the year that it is incurred.

Explanation It is implicit that an expense can be deducted in the year that it is incurred.

Section 25-5 Tax-related expenses

The provision allows a deduction for expenditure incurred for managing tax affairs and interest paid for the underpayment or late payment of tax.

Commentary The provision that allows a deduction for interest on underpayments or late payments of tax (subsection 51(5) of the 1936 Act) has been incorporated into this section {paragraph (I)(c)J.

Section 25-25 Borrowing expenses

The provision allows a deduction for borrowing expenses. In most cases, the deduction is spread over the period of the loan or 5 years.

1. Change Clarify that a deduction is only allowed for borrowing expenses to the extent that the money is used to produce assessable income in the year in which the deduction is claimed.

Explanation The existing law is unclear when there is a change in the use of borrowed money eg., if money is used to purchase a house which is used privately for several years, but later rented out (or vice versa).

63


There is Board of Review support for determining entitlement on a yearly basis. Under this approach, a deduction is allowed only in years when the money is used for income producing purposes.

This change will provide greater certainty for taxpayers.

2. Change Allow a deduction for any remaining undeducted borrowing expenses if the loan is repaid early.

Explanation This change provides a new benefit to taxpayers. If a loan is repaid early, the current law does not allow any undeducted borrowing expenses to be brought forward.

Section 25-35 Bad debts

64

The provision allows a deduction for bad debts written off in the income year.

1. Change The provision will provide specifically that a moneylender who acquires a debt from another moneylender may write off an amount up to the cost of the debt under the bad debt provision.

Explanation This change will give legislative authority to current practice, which allows a moneylender to claim a loss for a bad debt under the general deduction provision at the same time as a bad debt would have been recognised under the existing bad debt provision.

This change will provide greater certainty for taxpayers. For example, a money lender A lent $100 to C. Moneylender B purchases the rights under the loan for $80. The loan goes bad, and B is paid nothing on the loan. Under current practice, B cannot deduct the bad debt under paragraph 63(1)(b) of the existing bad debt provision, as B did not lend the money. However, B would be able to deduct the $80 loss under the general deduction provision at the same time as the debt would be recognised as bad.

The proposed change will enable B to deduct an amount up to the cost of the debt to B, namely $80, if the debt is written off as bad.

If only a part of the debt is written off as bad, the maximum that can be deducted for one or more income years is the amount by which the expenditure incurred in buying the debt exceeds so much of the debt as has not yet been written off as bad.

Example

B bought a debt of$100 for $80. In 1997-98 B writes off $30 of the debt as bad. B can deduct $10, which is the amount by which the expenditure B

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incurred in buying the debt ($80) exceeds so much of the debt as has not yet been written off as bad ($100 - $30 = $70).

IfB writes off the rest of the debt in 1998-99, how much can B deduct?

The maximum B can deduct is $80, which is the amount by which tlle expenditure B incurred in buying the debt ($80) exceeds so much of the debt as has not yet been written off as bad ($100 - $100 = $0). Because B deducted $10 for 1997-98, B's deduction for 1998-99 is $80 - $10 = $70.

2. Change Remove the redundant aspect of the existing bad debt provision, which deems a debt to be bad where a debtor becomes a bankrupt.

Explanation A debt can be treated as a bad debt regardless of whether, or when, the debtor becomes bankrupt. Therefore, a provision that deems a debt to be bad upon bankruptcy is not necessary. As long as a commercial judgment points towards the debt being bad for the time being, the debt is bad for the purposes of the bad debt provision.

Section 25-40 Loss from profit making undertaking

This provision allows a deduction for a loss arising from a profit making undertaking or plan provided that:

• the loss does not arise from the sale of property acquired after 20 September 1985; and

• the Commissioner is notified that the property was acquired for the purpose of carrying out the undertaking or plan. Under the current law, the taxpayer must notify the Commissioner no later than the date upon which the taxpayer lodged their first return after having acquired the property.

Change The provision will be amended to extend the time for lodgement of the notice to the date on which the taxpayer lodges their return for the year in which the property was acquired.

If a taxpayer is not required to lodge a return for that income year, the notice must be provided no later than when the next return is lodged for an income year after the income year in which the property was acquired.

Explanation If after acquiring property, a taxpayer lodges a return for a year before the year in which the property was acquired, under the existing law the notice must be provided no later than the time of lodgement of that return . Taxpayers might not be aware of this requirement, assuming that the notice was required in the return for the year in which the property was acquired. The proposed change is a logical adjustment that will make it easierto comply with the law.

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Commentary Various aspects of section 52 of the 1936 Act have not been rewritten as they are no longer relevant, because the provision does not apply in respect of the • sale of property acquired on or after 20 September 1985.

Section 25-45 Loss by theft etc.

The provision allows a deduction for a loss incurred through embezzlement, larceny, defalcation or misappropriation by an employee or agent.

Change The Bill will extend the provision so that losses incurred through theft or stealing by an employee or agent can be deducted.

Explanation Over the years, State legislation relating to criminal offences has been changed to introduce new terminology, or additional offences, to those listed in the existing legislation. This change will update the offences listed in this provision to include the offences of theft and stealing.

Section 25-55 Payments to associations

The provision allows a deduction for amounts paid for membership of a trade, business or professional association. If the amount is not deductible under the general deduction provision, the maximum amount that can be deducted is $42 per income year per association.

Change

One aspect of the provision will not be rewritten as it is of limited value, if not redundant. That aspect is set out in subsection 73(2) of the 1936 Act, and allows a deduction if an amount is paid to an association and the association carries on any activity of a nature that would be deductible if it was carried out by the taxpayer. The amount that can be deducted is limited to the amount of the subscription, levy or contribution that is applied by the association to meet losses or outgoings incurred in carrying out that activity.

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Explanation .' It is difficult in practice to comply with this subsection as it requires the taxpayer to know about the expenditure pattern and activities of the association. Such levies will generally be deductible under the general deduction provision.

Commentary • Another aspect of section 73 of the 1936 Act that will not be rewritten is subsection (1), under which a deduction is allowed for a periodical subscription to an association if the carrying on of a business was conditional

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on membership of that association. That aspect is unnecessary, as taxpayers could deduct such an expense under the general deduction provision .

Section 25-55 will relate to situations where membership of trade, business or professional associations would not be deductible under the general deduction provision. For example, if a taxpayer is retired but wishes to continue to be a member of such an association, in that case, section 25-55 will allow a deduction of up to $42 per association .

Section 25-75 Rates, land taxes and mutual receipts

The provision allows a deduction for rates and land taxes paid to the extent that property is used for the purpose of producing assessable income.

1. Change The provision will specifically provide that an entity that receives mutual income can deduct rates and taxes to the extent that it uses the property for the purpose of producing mutual receipts or assessable income.

Explanation This change will give legislative authority to current practice. It is relevant for clubs and professional associations that derive mutual receipts.

Under the principle of mutuality, an organisation cannot derive income from itself. Thus a club or professional association would not be receiving income, or assessable income, from its members. Strictly, such an entity could not deduct expenses to the extent that it derived amounts, known as mutual receipts, from its members. However, current practice allows such entities to deduct rates and land taxes as if the mutual receipts were assessable income.

A taxpayer who does not derive mutual receipts will be able to deduct rates and land taxes, to the extent that the property is used to produce assessable income, under the general deduction provision.

2. Change The Bill will remove the redundant provision that allowed taxpayers not deriving mutual receipts to deduct rates and land taxes paid in producing their assessable income. These taxpayers will be able to deduct such expenses under the general deduction provision .

Explanation In practical terms, there is little difference in what is allowed as a deduction under the existing section 72 compared with what is allowed under the general deduction provision. There are some minor differences, in that under section 72:

• the taxpayer must be personally liable for the expenditure; • the rates must be annually assessed;

the amount must be paid in Australia; and

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under current practice, clubs and associations can deduct an amount that could not be deducted under the general deduction provision, or, strictly speaking, under section 72.

The first three minor differences do not warrant the retention of this provision. The situation of clubs and associations has been specifically addressed by the change listed above.

Section 26-30 Relative's travel expenses

This provision limits the amount that can be deducted for a relative's travel expenses.

Commentary This section will identify more clearly the situations when deductions can be claimed for a relative's travel expenses, rather than, as in section 51AG of the 1936 Act, setting out when such expenses cannot be deducted.

The section will also adopt a different approach to the use of the terms 'employee' and 'employer'. In various areas of the tax law, the 1936 Act uses the term 'employee' but defines it to include people other than common law employees by reference to the definition of an employee in section 221 A of the 1936 Act. In contrast, in other areas of the tax law the term 'employee' is undefined and retains only its common law meaning. Section 26-30 will specifically alert readers to the point that the provision will apply to individuals other than common law employees. It introduces the new term PAYE earner, which is defined in the Dictionary (section 995-1 of the pending 1996 Act) to mean 'an employee' as defined in section 221A of the 1936 Act.

Division 34 Non-compulsory uniforms

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This Division provides that expenses for a non-compulsory uniform cannot be deducted unless the design of the uniform is registered and sets out how a uniform can be registered.

1. Change The standardised definition of the term 'associate' will apply instead of the definition contained in section 26AAB of the 1936 Act.

Explanation The use of a slightly different definition of the term 'associate' will have no impact in this context.

The term 'associate' only appears in sections 34-15 and 34-55. Section 34-15 defines a uniform as clothing which distinctively identifies the wearer as someone associated with the wearer's employer or a group consisting of the

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employer and one or more of the employer's associates. Even if the term 'associate' included a wider range of entities, as the group can be limited to the employer plus some but not all of the employer's associates, the use of a slightly wider definition of 'associate' will have no impact on the application of the law. Section 34-55 operates in a similar manner.

2. Change Subsection 51AL(lO) will not be rewritten. That provision stated that an instrument formulating approved occupational clothing guidelines was a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

Explanation The Legislative Instruments Bill 1996 (currently before the Parliament) will ensure that these guidelines are legislative instruments, and that they are subject to Parliamentary review. That Bill will also remove the current section 46A of the Acts Interpretation Act 1901. Accordingly, it is no longer necessary to specifically state that these guidelines and determinations are disallowable instruments.

Commentary The rewritten provision will separate out those aspects that are only relevant for an employee, and the more detailed aspects in relation to registration of a uniform that are only relevant for an employer. More important points, such as that the Division will not apply to occupation specific or protective clothing, are made earlier.

As with section 26-30, the Division will also adopt a different approach to the use of the terms 'employee' and 'employer'. In various areas of the tax law, the 1936 Act uses the term 'employee' but defines it to include people other than common law employees by reference to the definition of an employee in section 221A of the 1936 Act. In contrast, in other areas of the tax law the term 'employee' is undefined and retains only its common law meaning. Section 34-5 will alert readers specifically to the point that the provision will apply to individuals other than common law employees. It introduces the new term PAYE earner, which is defined in the Dictionary (section 995-1 of the pending 1996 Act) to mean 'an employee' as defined in section 221A of the 1936 Act.

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C Provisions of the old law that have not been rewritten


The rewrite will remove a redundant provision, section 64, which allows a deduction for commissions incurred in collecting assessable income. This section is superfluous because these expenses are deductible under the general deduction provision (section 8-1 of the 1996 Act).

Provision with minimal practical benefit

Change The rewrite will remove a provision, of minimal practical benefit to taxpayers, which allowed a deduction of up to $50 for capital legal expenses.

Explanation Section 64A of the 1936 Act allows a deduction of up to $50 for legal expenses of a capital nature if the expenses were incurred in carrying on a business to produce assessable income. The deduction must be reduced by any legal expenses that can be deducted under the general deduction provision (section 8-1 of the pending 1996 Act).

This provision is of limited value because the amount involved is only $50 and even that amount must be reduced by any legal expenses that can be deducted under the general deduction provision. In other words, if a taxpayer can claim legal expenses of $50 or more under the general deduction provision, this provision has no application.


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Part 1 of Schedule 4 of the Tax Law Improvement Bill 1996 will amend the pending Income Tax (Transitional Provisions) Act I996 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.

Part 1 will insert in Part 2-5 of Chapter 2 of the pending Income Tax (Transitional Provisions) Act I996 new Divisions 25, 26 and 34. These Divisions will set out how and when the rewritten sections will apply.

The rewritten provisions will usually apply to assessments for the 1997-98 or later income years. /Schedule 4, Part 2-5, sections 25-1, 26-1 and 34-1, pending Transitional Provisions Act]

In some cases, however, it is necessary in the transitional provisions that the rewritten provisions apply in different circumstances or specify additional points. These differences are explained in the following table:

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Transitional Nature of deduction section

Differences

25-40 Loss from profit- Applies to a loss arising in the 1997-98 income making undertaking or year or a later income year, even if the plan undertaking or plan was entered into, or began to

............................................................................................ ~.~.~.a.'!.i~~.().~~!..?~~().r.~.~.h.~~.~.i~~: ........... '" ............................ . 25-45 Loss by theft etc Applies to a loss discovered in the 1997-98

........................................................................................... !.~~9.~~.X~.lIr .. ().r .. a..I.a.~.~.r..!~~9.~.~.X~.lIr: ................................. . 26-30 Relative's travel

expenses Applies to travel on or after 1 July 1997.

Section 34-5 will ensure that the Register of Approved Occupation Clothing, the approved occupational clothing guidelines and any delegations made under section 51 AL of the 1936 Act will continue to operate for the purposes of the pending 1996 Act.




Divisions 25, 26 and 34 in Schedule 1; and • insert additional definitions in the Dictionary (section 995-1) of terms that

are used in the rewritten provisions contained in Division 25, 26 and 34 in Schedule 1.

Updated references

Section 12-5 of the pending 1996 Act lists all the provisions of both the existing and rewritten laws that contain rules about specific types of deductions. Part 2 of Schedule 4 to the Bill will update references to existing provisions that have been rewritten in Divisions 25,26 and 34 in Schedule 1, so that the lists refer to the rewritten provisions. Some listings have been moved to a more appropriate location to reflect the change in terminology in the rewritten provisions. For example, the listing for the embezzlement provision is now under the heading 'theft', as the provision has been renamed 'loss by theft etc.' [Schedule 4, Part 2: items 5 to 34J

Part 2 of Schedule 4 will also update other references to the 1936 Act deduction provisions that appear in other provisions that have already been rewritten . These references occur in sections 165-55, 165-70 and 900-30 of the pending 1996 Act. [Schedule 4, Part 2: items 35 to 38J

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Dictionary terms

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Part 2 of Schedule 4 to the Bill will insert definitions of terms used in the rewritten provisions in Divisions 25, 26 and 34 in Schedule 1.

In some cases, the label used and the meaning of the definition have not changed from the existing law. The following definitions fall into this category:

Accrued leave transfer payment. The definition is the same as that in section 6G of the 1936 Act. {Schedule 4, Part 2: item 40J

Agent. The definition is the same as that in subsection 6(1) of the 1936 Act {Schedule 4, Part 2: item 41J

Approved occupational clothing guidelines. The definition is the same as that in subsection 51 AL(7) of the 1936 Act. {Schedule 4, Part 2: item 42J

Child. The definition is the same as that in section 6(1) of the 1936 Act. {Schedule 4, Part 2: item 43J

Design. The definition is the same as that in subsection 51AL(26) of the 1936 Act. {Schedule 4, Part 2: item 45J

Disease. The definition is the same as that in subsection 51AL(26) of the 1936 Act. {Schedule 4, Part 2: item 46J

Industry Secretary. The definition is the same as that in subsection 51AL(26) of the 1936 Act. {Schedule 4, Part 2: item 48J

Occupation specific clothing. The definition is the same as that in subsection 51AL(26) of the 1936 Act. {Schedule 4, Part 2: item 52J

Protective clothing. The definition is the same as that in subsection 51AL(26) of the 1936 Act. {Schedule 4, Part 2: item 54J

Registered tax agent. The definition is the same as that in section 251A of the 1936 Act. {Schedule 4, Part 2: item 58J

Senior Executive Service office. The definition is the same as that in subsection 51 AL(26) of the 1936 Act. {Schedule 4, Part 2: item 60J

Definitions that have changed from the existing law and the new defined terms are explained below.

New definition: AAT. {Schedule 4, Part 2: item 39/

Commentary: New label, previously 'Tribunal' as defined in subsection 6(1).

New definition: Fringe benefit. {Schedule 4, Part 2: item 47J

Commentary: New term. It will be used for brevity, along with the new term 'providing a fringe benefit', when discussing links to the Fringe Benefits Tax Assessment Act 1986. In the deductions provisions covered by Schedule 4, the definition will be used when rewriting references to the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax

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Assessment Act 1986). For example, see subsection 51(6A). This results in no change to the law.

New definition: Legal practitioner. {Schedule 4, Part 2: item 49/

Commentary: New tenn. It will be used for brevity to replace the phrase 'a person who is emolled as a barrister, a solicitor or a barrister and solicitor of a federal court or a court of a State or Territory' as used in section 69 of the 1936 Act, and similar phrases used elsewhere. There is no change to the law.

New definition: Leisure facility. (Schedule 4, Part 2: item 50/

Commentary: The definition is based on the definition in subsection 51 AB (1 ) of the 1936 Act. It is drafted differently in that, rather than define 'excepted facilities' which are excluded specifically from the definition of a 'leisure facility', section 26-50 says that, in the same circumstances, the provision does not apply to a 'leisure facility'. This provides a more direct result with no change to the law.

New definition: Non-compulsory. {Schedule 4, Part 2: item 51/

Commentary: This is a new tenn picking up the concepts set out in 5IAL(4)(b) of the 1936 Act. This results in no change to the law.

New definition: Period of the loan. {Schedule 4, Part 2: item 53]

Commentary: This is a new tenn that contains some of the rules in section 67 of the 1936 Act. It also includes a policy change that enables a taxpayer to deduct borrowing expenses earlier if the loan is repaid early. See the commentary on section 25-25.

New definition: Provide afringe benefit. {Schedule 4, Part 2: item 55/

Commentary: New term. It will be used for brevity, along with the new tenn 'fringe benefit', when discussing links to the Fringe Benefits Tax Assessment Act 1986. As noted in the item, the definition is based on the definition of 'provide' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986. In the deductions provisions covered by Schedule 4, the definition will be used when rewriting references to the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986). For example, see subsection 51(6A). This results in no change to the law .

New definition: Recognised tax adviser. {Schedule 4, Part 2: item 56/

Commentary: New label, previously recognised professional tax adviser in subsection 69(11) of the 1936 Act.

New definition: Recreational c/ub.{Schedule 4, Part 2: item 57/

Commentary: New label, previously 'club' as defined in subsection 5IAB(I) of the 1936 Act. There is no change to the law.

New definition: Related entity. {Schedule 4, Part 2: item 59/

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Commentary: New label, previously 'associated person' in subsection 65(1 D) of the 1936 Act. Those components of the definition that apply if the taxpayer is a partnership will be rewritten at a later stage.

New definition: Uniform. [Schedule 4, Part 2: item 62/

Commentary: New label, previously a component of non-compulsory uniform/wardrobe in subsection 51 AL( 4). The definition is the same as that in subsection 51AL(26) of the 1936 Act. There is no change to the law.

Items 44 and 61 repeal the previous meaning of the term club, as contained in the pending 1996 Act. This term is not required, and conflicts with the use of the term without definition in other places in the legislation. The term club, in the context of the definition of sporting club, will now rely on the normal meaning of that term. There is no change to the law.


The amendments made by Part 2 of Schedule 4 apply to assessments for the 1997 -98 and later income years. [clause 4, Tax Law Improvement Bill 1996/ This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the deduction provisions.


Part 3 of Schedule 4 to the Bill will amend the 1936 Act to: • insert references to the rewritten provisions (contained in Divisions 25, 26

and 34 in Schedule 1) where the 1936 Act refers to the existing provisions; and

• close off the application of provisions of the 1936 Act that have been rewritten in Divisions 25, 26 and 34 in Schedule 1, so that the existing provisions apply only to the 1996-97 and earlier income years.


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Part 3 of Schedule 4 will insert in the 1936 Act references to the rewritten provisions contained in Divisions 25, 26 and 34 where the 1936 Act refers to the existing provisions. There are four categories of these amendments:

The first category will add a reference to a rewritten provision in a section of the 1936 Act where a reference to the existing provisions currently appears, so that both existing and rewritten provisions are referred to. This is necessary for the references in subsections 51 AD(17), 51 AD(18), 63CA(3) and sections 82KH, 304 and 396. [Schedule 4, Part 3: items 72, 73, 75,91,99,1/7 to 123,132 and 133J


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• have not yet been rewritten and closed off; and can apply to amounts that relate to only one income year at a time, being the 1997-98 or a later income year. {Schedule 4, Part 3: items 70, 84 to 90, 92, 96,97,104,106,111,112,124,131 and 134 to 138}

The third category will add references to rewritten provisions additional to those contained in Divisions 25, 26 and 34. This is the case for amendments to section 51AAA, which refers to deductions allowed under all of Subdivision A of Division 3 of the 1936 Act Items 63 and 64 will substitute references to section 8-1, Divisions 25,30,34,36 and 165 and Subdivision 170-A.

The fourth category contains minor wording changes. Some of these changes are required to take account of the co-existence of the 1936 Act and the pending 1996 Act For example, item 93 adds the words 'of this Act' to subparagraph 63D(I)( a)(ii), to make clear that the reference is to the 1936 Act rather than the pending 1996 Act. {Schedule 4, Part 3: items 93, 94, 95, 98, 100 and 105/ Other changes are required because of the addition of references to other sections in a provision. For example, item 71 adds the words 'of this section' to paragraph 51AD(16)(b), to make clear that the subsection referred to is in section 51AD. {Schedule 4, Part 3: items 71, 74 and 76}

Closing otT the application of existing provisions

Part 3 of Schedule 4 will insert new provisions into the 1936 Act that will close off the application of existing provisions that have been rewritten. {Schedule 4, Part 3: items 65 to 69, 77, 79 to 83,101 to 103,107 to 110 and 113 to 1I6}



The amendments made by Part 3 of Schedule 4 apply to assessments for the 1997-98 and later income years. {clause 4, Tax LaHllmprovement BUI1996] This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the gift provisions.


Part 4 of Schedule 4 to the Bill will amend the Fringe Benefits Tax Assessment Act 1986 to substitute references to a rewritten provision contained in subsection 26-30 in Schedule 1, where that Act currently refers to the existing provision. {Schedule 4, Part 4: items 139 and 140}

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Gifts

This chapter explains the rewritten provisions under which income tax deductions are allowed for gifts.

These provisions are contained in new Division 30 in Schedule 1 to the Tax Law Improvement Bill 1996.

Transitional and consequential amendments for the rewritten provisions are contained in Schedule 9 to the Bill .

Gifts



the rewritten provisions in Division 30 (Gifts or contributions) in Schedule 1 to the Tax Law Improvement Bill 1996; and the transitional provisions and consequential amendments for those rewritten provisions, which are in Schedule 9 to the Bill.

Division 30 rewrites the provisions of the 1936 Act that allow deductions for gifts and contributions. The corresponding provisions of the 1936 Act are sections 78, 78AA and 78AB.

The rewritten provisions will be in Division 30 of the pending 1996 Act.

Part A of this chapter summarises new Division 30.

Part B explains the changes proposed to the content of Division 30.



Part E explains the amendments that need to be made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, as a consequence of the rewriting of the provisions of the 1936 Assessment Act. These provisions are located in Parts 2 to 4 of Schedule 9 to the Bill.

A Summary of the new law

Guide to Division 30: Gifts or contributions

What the Division This Division sets out the rules for working out deductions for will do certain gifts or contributions.

Guide to Subdivision 30-A: Deductions for gifts or contributions

What the Subdivision 30-A allows deductions for a non-testamentary Subdivision will do gift or contribution to a recipient listed in the following table,

subject to any conditions and valuation rules. [section 30-15}

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Recipient

A fund, authority or institution in Australia that is listed:

(a) by name (for example, the Nursing Mothers' Association); or (b) by type (for example, a public hospital).

{Subdivisions 30-A and 30-B{

A public fund established and maintained solely for:

(a) providing benefits to an entity listed in Subdivision 30-B and for any purposes set out for that entity; or

(b) the establishment of such an entity.

A registered political party.

A public library, museum or art gallery in Australia.

An institution consisting of any 2 of the above.

The Australiana Fund.

Artbank

A National Trust body.

Type of gift or contribution

Money

Property purchased in the year before making the gift.

Trading stock disposed of outside the ordinary course of business if the market value is included in assessable income.

As above.

Money

Property purchased in the year before making the contribution.

Money

Property (except land or a building) accepted by the recipient for inclusion in a collection it is maintaining or establishing.

Property (except land or a building) accepted by the Commonwealth for inclusion in an Artbank collection .

A place on the Register of the National Estate, accepted by the National Trust body for preserving for the public.

Gifts

Conditions

Gifts of $2 or more.

Other conditions may be relevant to particular recipients.

These conditions are I isted in Subdivision 30-B.

Subdivision 30-A explains how much can be deducted.


The will or trust requires the gift proceeds to be invested only in a way that an Australian law allows trust money to be invested.


Contributions of more than $2 but not more than $ lOO.

The donor cannot be a company.


Gifts of$2 or more.

Subdivisions 30-A and 30-C explain how much can be deducted.

Subdivisions 30-A and 30-C explain how much can be deducted.


Subdivisions 30-A and 30-C explain how much can be deducted .

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Gifts

Guide to Subdivision 30-B: Tables of recipients for deductible gifts


It contains lists of potential recipients of a deductible gift and any special conditions that may need to be satisfied. The lists are grouped as follows:

• Health /section 30-20}

• Education /sections 30-25 to 30-35}

• Research /section 30-40}

• Welfare and rights /section 30-45}

• Defence /section 30-50}

• Environment /sections 30-55 and 30-60}

• Industry, trade and design /section 30-65}

• The family /sections 30-70 and 30-75}

• International affairs /sections 30-80 and 30-85}

• Sports and recreation /section 30-90}

• Philanthropic trusts /section 30-95}

• Cultural organisations /sections 30-100 and 30-110j.

Guide to Subdivision 30-C: Rules applying to particular gifts of property


The general rule is

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It contains special rules for working out how much can be deducted for a gift of property to a public library, museum or art gallery, the Australiana Fund, Artbank or a National Trust body /items 4, 5 and 6 in the table in section 30-15}.

The deduction is the average of the market values specified in the written valuations from approved valuers.

Subdivision 30-C sets out:

(a) how a person becomes an approved valuer; and (b) the exceptions to the general rule; and (c) the situations when you must reduce the amount you can

deduct, for example if the recipient did not receive immediate and unconditional control of the property; and

(d) how much can be deducted if the property is jointly owned .

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Gifts

Gujde to Subdivision 30-D: Testamentary gifts under the Cultural Bequests Program


It allows a deduction for a testamentary gift of property under the Cultural Bequests Program.

Guide to Subdivision 30-E: Register of environmental organisations


It requires the establishment of a register of environment organisations. It sets out certain conditions that such organisations must meet. Section 30-15 allows you to deduct a gift that you make to a fund that is on the register.

Guide to Subdivision 30-F: Register of cultural organisations


Requires the establishment of a register of cultural organisations. It sets out certain conditions that such organisations must meet. Section 30-15 allows you to deduct a gift that you make to a fund that is on the register.

Guide to Subdivision 30-G: Index to this Division


Contains an index of all potential recipients of deductible gifts.

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Gifts


Removal of discretions

Change Omit Commissioner's discretions which are inconsistent with self-assessment principles,

Explanation As rewriting of the income tax law proceeds, many of the discretions that the Commissioner of Taxation may exercise are being removed, This allows the new law to more fully reflect the principles of the self assessment system,

The following changes are being made in the context of reviewing the gift provisions (references are to the 1936 Act):

Provision

78(5)(b)

78(11 )

78(14)(c)(i)

78(14)(c)(ii)

78(15)

78(16)

Change

Remove the phrase 'the Commissioner is satisfied that',

Remove the phrase 'in the Commissioner's opinion',

Remove the phrase 'the Commissioner is of the opinion that',

Replace 'the value of the gift is the amount that the Commissioner considers was the value of the property as at the time when the gift was made' with 'the value of the gift is the amount that fairly represents the value of the property as at the time when the gift was made',

Remove the phrase' the Commissioner is satisfied that' in (b), Replace 'reduced by such amount as the Commissioner considers reasonable' with 'reduced by such amount as is reasonable',

Replace 'as the Commissioner considers reasonable' with 'as is reasonable',

Section 30-15 Deductions for gifts or contributions

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The provision sets out the rules for working out deductions for certain gifts,

Change Simplify the rules for deductions for gifts of trading stock outside the ordinary course of business,

Explanation This will remove a minor anomaly and allow the law to be more simply expressed,

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Gifts

The current law allows a deduction for a gift of trading stock to which subsection 36(1) of the 1936 Act applies. That subsection requires the value of trading stock to be included in assessable income if it is disposed of outside the ordinary course of business (because the cost of acquiring an item of trading stock is normally a deduction).

However, a deduction is not allowable if the donor elects to take advantage of certain provisions that allow a reduction in the amount included in assessable income. This applies to elections under subsection 36(3) and section 36AAA, but not to a similar election under section 36AA:

• subsection 36(3) allows a reduction in the amount included in assessable income if live stock is disposed of because of a natural disaster, the expropriation ofland, or tick control;

• section 36AAA is a similar concession for the disposal, death or compulsory destruction oflive stock by reason of tire, drought or flood; and

• section 36AA allows a reduction in the amount to be included in assessable income in certain cases of compensation resulting from death, disposal or compulsory destruction of live stock.

Section 30-15 will apply to all the elections, thus ensuring a consistent and simple rule. In practice a gift of trading stock would rarely arise in the circumstances covered by section 36AA.

Section 30-200 Getting written valuations

This provision requires valuations of some gifts of property. The valuations are required to work out how much can be deducted for a gift of property to a public library, museum or art gallery, the Australiana Fund, Artbank or a National Trust body.

Change Remove the requirement that the valuations must be given to the Commissioner.

Explanation This requirement is no longer enforced. This allows the new law to more fully reflect the principles of the self assessment system .

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Gifts

C. Provisions of the old law that have not been rewritten

Subsection 78(25A) of the 1936 Act provides that guidelines and determinations made in relation to a testamentary gift under the Cultural Bequests Program are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901. The Legislative Instruments Bill 1996 (currently before Parliament) will ensure that these guidelines and determinations are legislative instruments. They will be subject to review under the Legislative Instruments Bill 1996. The Bill will also removed the former section 46A of the Acts interpretation Act. Accordingly, it is no longer necessary to specifically state that these guidelines and determinations are disallowable instruments.



Part 1 will insert in Chapter 2 of the pending Income Tax (Transitional Provisions) Act 1996 new Part 2-5, Divisions 25 and 30. New Divisions 25 and 30 will set out how and when the rewritten sections will apply.

The rewritten provisions will apply to assessments for the 1997-98 or later income years. {Schedule 9, Part 1: section 30-1, pending Transitional Provisions ActJ

Transitional provisions will ensure that any declarations, instruments, certificates, guidelines and gift registers in force under the Income Tax Assessment Act 1936 will continue to remain in force for the purposes of the pending Income Tax Assessment Act 1996. {Schedule 9, Part 1: sections 30-5,30-15, 30-20 and 30-25, pending Transitional Provisions ActJ

Section 30-10 will ensure that any applications for the approval of a testamentary gift that have not yet been decided will be treated as an application under the rewritten provisions. {Schedule 9, Part 1: section 30-10, pending Transitional Provisions ActJ



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Part 2 of Schedule 9 to the Bill will amend the pending1996 Act to: update references to provisions of the pending 1996 Act that have been rewritten in Division 30 and section 25-50 in Schedule 1; and

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Gifts

• insert additional definitions in the Dictionary (section 995-1) of terms that are used in the rewritten provisions in Division 30 in Schedule 1.

Updated references

Section 12-5 of the pending 1996 Act lists all the provisions of both the existing and rewritten laws that contain rules about specific types of deductions. Part 2 of Schedule 9 to the Bill will update references to existing provisions that have been rewritten in Division 30 and section 25-50 in Schedule 1, so that the lists refer to the rewritten provisions. {Schedule 9, Part 2, items 3 to 5}

Part 2 of Schedule 9 will also update references to the 1936 Act gift provisions that appear in other provisions that have already been rewritten. These references occur in sections 26-55 and 165-55 of the 1996 Act. {Schedule 9, Part 2: items 6 to 13}

Dictionary terms

Part 2 of Schedule 9 to the Bill will insert definitions of terms used in the rewritten provisions in Division 30 in Schedule 1.

In one case, the label used and the meaning of the definition have not changed from the existing law. This is the case for the following definition:

Cultural organisation. The definition is the same as that in subsection 78AA(1) of the 1936 Act. {Schedule 2, Part 2: item 14}

There is one new defined term.

New definition: Environmental organisation. {Schedule 2, Part 2: item 15}

Commentary: The definition is based on the requirements set out in subsections 78AB(2) and (7). This results in no change to the law.


The amendments made by Part 2 of Schedule 9 apply to assessments for the 1997 -98 and later income years {clause 4, Tax Law Improvement Bill 1996}. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the gift provisions.


Part 3 of Schedule 9 to the Bill will amend the 1936 Act to: • insert references to the rewritten provisions (contained in Division 30 in

Schedule 1) where the 1936 Act refers to the existing provisions; and • close off the application of provisions of the 1936 Act that have been

rewritten in Division 30 and section 25-50 in Schedule 1, so that the existing provisions apply only to the 1996-97 and earlier income years.

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Gifts


Part 3 of Schedule 9 will insert in the 1936 Act references to the rewritten provisions contained in Division 30 where the 1936 Act refers to the existing provisions. There are two categories of these amendments as discussed below.

The first category will add a reference to a rewritten provision in a section of the 1936 Act where a reference to an existing provision currently appears, so that both existing and rewritten provisions are referred to. This is necessary for the reference to subsections 78(4) and (5) in paragraph (aa) of the definition of apportionable deductions in subsection 6(1) of the 1936 Act. This definition has not yet been rewritten and closed off, and can apply to amounts relating to more than one income year (including an income year before the 1997-98 income year). This makes it necessary to refer to both the existing and rewritten provisions. {Schedule 9, Part 3: items 16}

The second category will omit the reference to an existing provision in a section of the 1936 Act and replace it with the rewritten provision. This is necessary for those sections of the 1936 Act that:


the 1997-98 or a later income year. {Schedule 9, Part 3: items 33 to 40}


Part 3 of Schedule 9 will insert new provisions into the 1936 Act that will close off the application of existing provisions that have been rewritten. {Schedule 9, Part 3: items 17 to 32}



The amendments made by Part 3 of Schedule 9 apply to assessments for the 1997-98 and later income years. {clause 4, Tax Law Improvement BiD 1996} This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the gift provisions.


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Part 4 of Schedule 9 to the Bill will add or substitute references to the rewritten gift provisions in the following Commonwealth Acts:

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Gifts

Commonwealth Act Amended by

I Customs Tariff Act 1995 Schedule 9, Part 4: item 41

Sales Tax (Exemptions and Classifications) Schedule 9, Part 4: item 42 Act 1992

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Entertainment

This chapter explains the rewritten provisions about the income tax treatment of entertainment expenses.

These provisions are contained in the new Division 32 in Schedule 1 to the Tax Law Improvement Bill 1996.


Entertainment



• the rewritten provisions in Division 32 (Entertainment) in Schedule 1 to the Tax Law Improvement Bill 1996; and

• the transitional provisions and consequential amendments for those rewritten provisions contained in Schedule 10 to the Bill.

Division 32 contains the rewritten provisions of section 51 AE and section 26AAAC of the 1936 Act which deal with the rules about entertainment.

Part A of this chapter summarises the entertainment rules contained in the new Division 32 of the pending 1996 Act. These provisions are located in Schedule 1 to the Bill.

Part B - there are no changes proposed to the content of the current provisions.



Part E explains the amendments that need to be made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, as a consequence of rewriting the provisions of the 1936 Assessment Act. These provisions are located in Parts 2 to 4 of Schedule 10 to the Bill.


Guide to Division 32: Entertainment


The general rule is

What entertainment?

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It will explain the income tax treatment of entertainment.

A loss or outgoing is not deductible under section 8-1, of the pending 1996 Act, to the extent it is incurred in providing entertainment. {section 32-5J

Entertainment by way of: • food, drink or recreation; or • accommodation or travel to do with providing

entertainment by way of food, drink or recreation. /section 32-IOJ

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Property used in providing entertainment

Entertainment

To the extent that property is used for providing nondeductible entertainment, that use is taken not to be for the purpose of producing assessable income. [section 32-15}

The general rule will not apply for these items of entertainment:

Fringe benefits

Employer expenses

Meals in an in-house dining facility

Meals in a diningfacility

In-house recreation facilities

Certain exempt fringe benefits

Overtime meals

Entertainment allowances

Seminar expenses

Incidental costs

Entertainment that is a fringe benefit. [section 32-20}

Food and drink provided to an employee in an in-house dining facility. [section 32-30, item 1. I}

Food and drink supplied in an in-house dining facility to individuals who are not employees can be claimed if $30 for each meal is included in the taxpayer's assessable income. [section 32-30, item 1.2, subsection 32-70(1)J

However, taxpayers can choose not to claim the deduction and not to have the $30 included in their assessable income. [section 32-30 item 1.2, subsection 32-70(2)J

Food or drink employees receive in a dining facility, if they work in that dining facility or in a facility for accommodation, recreation or travel (such as a motel or resort) that contains the dining facility. A dining facility is a canteen, dining room, cafe, restaurant or something similar. [section 32-30, item 1.3, section 32-60/

A recreation facility on property occupied by the taxpayer and mainly for use by its employees. [section 32-30, item 1.5/

Food, drink or meals that are exempt benefits under the Fringe Benefits Tax Assessment Act 1986 (FBTAA). [section 32-30, items 1.6, 1.7/

Some food or drink supplied to employees under an industrial instrument relating to overtime. [section 32-30, item 1.4}

Entertainment allowances paid to employees, if they are included in their assessable income. [section 32-30, item 1.8/

Entertainment that is reasonably incidental to a person's attendance at a seminar that goes for at least 4 hours (certain qualifications apply). [section 32-35, item 2.1, section 32-65/

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Entertainment

Entertainment industry

Expenses of an entertainment business

Expenses of employees in the entertainment industry

Promotion and advertising expenses

Overtime meals of employees

Charitable entertainment

Anti-avoidance

Entertainment supplied for payment in the ordinary course of a business (such as meals by a restaurateur or the catering for 'in flight' meals by an airline). [section 32-40,

item 3.1J

Entertainment paid for and provided as an employee of a business that charges for that entertainment. For example stage make-up purchased by an actress. [section 32-40, item

3.2J

Entertainment provided to publicly promote a bU,siness' goods or services if certain conditions are met. [sir,;tion 32-

45, items 4.1, 4.2, and 4.3J \ !

Food and drink during overtime work and for which an allowance is paid under an industrial instrumen( [section

32-50, item 5.1J

Free entertainment provided to disadvantaged members of the public. [section 32-50 item 5.2J

Arrangements where you pay for something such as advertising and you receive entertainment for less than it would otherwise cost can be affected by an antiavoidance provision. The Commissioner can apportion a reasonable part of the amount paid to the entertainment provided. [section 32-75J

Special rules for companies and partnerships

Company directors [section 32-80J and partners [section 32-90J are treated as employees in some provisions. 'Employees', 'directors' and 'property' of a company in some provisions mean employees, directors and property of any co"mpany in the same wholly owned group [section 32-85J.

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Entertainment

B. Discussion of changes There are no changes proposed to the content of the current provisions.

c. Provisions of the old law that have not been • rewritten

• •


Some provisions of the existing law are redundant and have not been included in the new law. They are summarised in the following table:

Provision

Subsection 51AE(5A)

Subsection 51AE(5B)

Subsection 51AE(ll)

Subsection 51AE(15)

Subject

Overrides the general rule that denies deductibility of entertainment expenses for:

(a) meals which constitute a board fringe benefit within the FBTAA;

(c) a living-away-from-home food fringe benefit within the FBTAA;

(e) a fringe benefit whose taxable value is reduced by section 6lD (temporary accommodation meals) or section 6SA (education of children of overseas employees) of the FBTAA;

(t) a remote area holiday fringe benefit within the FBTAA; and

(g) a fringe benefit in respect of overseas employment holiday transport.

Extends the exceptions in subsection SIAE(SA) back to the commencement date of the general prohibition on deductions for entertainment expenses.

Defines 'deductible travel' used in subsection SIAE(lO).

Reason for omission

Since the introduction of subsection SIAE(SAA) {section 32-20J in 1994, there has been a general exception for the cost of providing a fringe benefit.

A transitional provision has no ongoing effect.

That term is used only in subsection SIAE(IO) which is not being rewritten.

Defines 'non-deductible entertainment' That term is no longer used. used in subsections SIAE(13) and (14).

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Entertainment

Limited application

Provision not to be rewritten The exception in paragraph 51 AE(5)(g) of the 1936 Act has not been rewritten. The exception excludes from non-deductibility expenditure:

• that only involves the entertainment of the recipient; and • that would be deductible under the general deduction provision if the

recipient had incurred it.

Reason for omission This provision has very limited if any application. Meals while travelling overnight on business are not excluded from deduction under section 32-5 because they are not entertainment. Similarly the meal of a restaurant reviewer or the ticket of a theatre critic would not constitute entertainment.

Provision not to be rewritten Subsection 51AE{l 0) which prevents the existing exceptions in paragraphs 51AE(5)(g) entertainment and (h) employee of an entertainment business from applying to an employee's overtime meals and most seminars, has not been reproduced in the rewritten law.

Reason for omission The limitations imposed by subsection 51 AE( 1 0) have very limited scope. Removal of this provision greatly simplifies the legislation.

Unnecessary duplication

Provisions not to be rewritten The definitions of related companies {subsection 51AE(16)], subsidiary companies {subsection 51AE(17)J, subsidiary of a subsidiary {subsection 51AE(I8)J

and person in a position to affect the rights of a company {subsection 51AE(19)]

have not been rewritten.

Reason for omission These terms and concepts are dealt with in Division 975. 'Related company' is covered by the concept ofa member of the same 'wholly owned group' of companies contained in section 975-500. 'Subsidiary' and 'subsidiary of a subsidiary' and 'holding company' are covered within the concept of' 100% subsidiary' in section 975-505. 'A person in a position to affect the rights of a company' is covered in section 975-150.

Abundance of caution

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Provision not to be rewritten

Subsection 51AE(6) is a safeguarding provision that allows the Commissioner of Taxation to ignore attempts to restructure business arrangements to bring them within the ambit of two exceptions:

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Entertainment

charging for entertainment that it is reasonable to expect to be provided free of charge [paragraph SIAE(S)(b)f; or providing entertainment under a contract for the supply of goods or services in order to promote your business to the public that it is reasonable to expect to be provided separately from such a contract [paragraph S1AE(S)(b)f.

Reason for omission Cases that involve blatant arrangements would be caught by the general antiavoidance provisions. In other cases the expenditure would not qualify for deduction under general principles.

Provision not to be rewritten Subsection 5IAE(12) states that the classes oflosses or outgoings that are deductible under the general deduction provision are not extended by any of the exceptions in subsection 51 AE( 5).

Reason for omission Subsection 51AE(l2) has no practical effect other than to put beyond doubt what is already clear - that what is deductible under subsection 51 (1) is not expanded by any of the exceptions in subsection 51AE(5).

D Transitional arrangements

Part 1 of Schedule 10 of the Tax Law Improvement Bill 1996 will amend the pending Income Tax (TranSitional Provisions) Act 1996 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.

Part 1 comprises only item 1, which will insert in Part 2-5 of Chapter 2 of the pending Income Tax (Transitional Provisions) Act 1996 the new Division 32. The new Division 32 will set out how and when the rewritten sections will apply.

The rewritten provisions will apply to assessments for the 1997-98 or later income years. [Schedule 10, Part 1: section 32-1, pending Transitional Provisions Act]



Part 2 of Schedule 10 to the Bill will amend the pending 1996 Act to: .

• update references to provisions of the 1936 Act that have been rewritten in Division 32 in Schedule 1; and

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Entertainment

insert additional definitions in the Dictionary in section 995-1 of terms that are used in the rewritten provisions contained in Division 32 in Schedule 1.

Updated references

Section 10-5 of the pending 1996 Act contains a list of all the provisions of both the existing and rewritten laws that deal with particular kinds of assessable income. Part 2 of Schedule 10 to the Bill will update the reference to the existing provision (26AAAC) that has been rewritten in Division 32 in Schedule 1, so that the lists refer to the rewritten provision. {Schedule 10, Pari 2: item 2J

Section 12-5 of the pending 1996 Act contains a list of all the provisions of both the existing and rewritten laws that deal with specific types of deductions. Part 2 of Schedule 10 to the Bill will update the reference to the existing provision (51AE) that has been rewritten in Division 32 in Schedule 1, so that the lists refer to the rewritten provision. {Schedule 10, Pari 2: item 3J

The reference in the signpost in subsection 43-50(4) to subsection 51AE(14) has been replaced with a reference to section 32-15. {Schedule 10, Pari 2: item 4J

Two notes have been added to the end of the definition of 'purpose of producing assessable income' to signpost provisions that affect whether use of property is for the purpose of producing assessable income. {Schedule 10, Pari 2: item 10J


Part 2 of Schedule 1 to the Bill will insert into the Dictionary (section 995-1 of the pending 1996 Act) new definitions of terms used in the rewritten provisions in Division 32 in Schedule 1.


• In-house diningfacility {Schedule 1, Part 2: item 9J • Seminar {Schedule 1, Part 2: item 11J.

The label used for some concepts has changed without any change in meaning from the existing law, and some rearrangement of concepts has resulted in new defined terms. These are explained below.

New Definition: Business meeting. {Schedule 10, Part 2: item 5J

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Commentary: This is the equivalent of paragraph (a) of the definition of I eligible seminar in subsection 51AE(l). It covers the ordinary business meetings that relate to a particular business. It excludes from its meaning

96

those items that were covered by the definition of exempt training seminar in subsection 51AE(l). This is merely a rearrangement and relabelling of the previous provisions.

New Definition: Diningfacility.{Schedule 10, Pari 2: item 6J

Commentary: The new definition of 'dining facility' is the same as the old definition of 'eligible dining facility' in subsection 51AE(1) of the 1936 Act. •

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Entertainment

New Definition: Entertainment. {Schedule 10, Part 2: item 7J

Commentary: The new definition of 'entertainment' together with 'provide' has the same effect as the old definition of 'provision of entertainment' in subsection 51AE(3) of the 1936 Act. The word 'provide' continues to take its ordinary meaning. The scope of the definition is the same, despite the omission of paragraphs 51AE(3)(d), (e) and (t). The omissions have no substantive effect on the definition, they were clearly within the definition's ordinary scope; Business lunches still constitute entertainment.

New Definition: Goes/or at least 4 hours. {Schedule 10, Part 2: item 8J

Commentary: This definition picks up the concepts in subsection 51AE(2), the continuity of an eligible seminar and the time period from the definition of eligible seminar. This is merely a rearrangement of the previous provisions.


The amendments made by Part 2 of Schedule 10 apply to assessments for the 1997-98 and later income years {clause 4 Tax Law Improvement BiU 1996J. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the entertainment provisions.

Amendments of the Income T~AssessmentAct 1936

Part 3 of Schedule 10 to the Bill will amend the 1936 Act to:

• insert references to the rewritten provisions contained in Division 32 in Schedule 1, where the 1936 Act currently refers to the existing provisions; and

• close off the application of provisions of the 1936 Act that have been rewritten in Division 32 in Schedule 1, so that the existing provisions apply only to the 1996-97 and earlier income years.


Part 3 of Schedule 10 will insert in the 1936 Act a reference to the rewritten provision section 32-5 where the 1936 Act currently refers to the existing provision section 51AE(4). The reference to section 51AE(4) will be omitted. This is necessary because section 21A has not yet been rewritten and closed off; and can apply to amounts that relate to only one income year at a time, being the 1997-98 or a later income year. {Schedule 10, Part 3: items 12, 13J


Part 3 of Schedule 10 will insert new provisions into the 1936 Act that. will close off the application of existing provisions that have been rewritten. {Schedule 10, Part 3: items 14, 15J

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Entertainment

Sections 51AE and 26AAAC need to be closed off so that they only apply to the 1996-97 and earlier income years.


The amendments made by Part 3 of Schedule 10 apply to assessments for the 1997-98 and later income years The rewritten provisions will apply to assessments for the 1997-98 or later income years (clause 4 Tax Law Improvement

Bill 1996J. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the entertainment provisions.


Part 4 of Schedule 10 to the Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to add references to rewritten provisions contained in Division 32 in Schedule 1, where the Act currently refers to the existing provisions. {Schedule 10, Part 4: items 17,19, 20 and 21J


Part 4 of Schedule 10 will insert into paragraph 37CE(1)(t) of the FBTAA a reference to the rewritten definition of in-house diningfacility in section 32-55 of Schedule 1, where the FBTAA currently refers to the existing provision of section 51AE(1). The reference to section 51AE(1) will be omitted. {Schedule 10, Part 4: item 16J

Part 4 of Schedule 10 will insert into the definition of' deductible expense' in subsection 136(1) of the FBTAA Act a reference to Division 32. {Schedule 10, Part 4: item 19J

Part 4 of Schedule 10 will replace the definition of 'non-deductible entertainment expenditure' in subsection 136(1) of the FBTAA with a rewritten definition which incorporates a reference to section 32-5 contained in Schedule 1 as well as a reference to the existing provision of subsection 51 AE( 4). {Schedule 10, Part 4: item 21J

Part 4 of Schedule 10 will insert a definition of' entertainment' into subsection 136(1). {Schedule 10, Part 4: item 20J This will replace the definition of providing entertainment in section 152 which has been deleted. (Schedule 10, Part 4: item 22J

This also results in amendments to paragraph 63A(1)(b) and to the definition of 'business premises' in subsection 136(1) to remove the reference to the definition of provision of entertainment in section 51AE of the 1936 Act. {Schedule 10, Part 4: item 17 and item 18J


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The amendments made by Part 4 of Schedule 10 apply to the providing of entertainment on or after 1 July 1997. {Schedule 10, Part 4: item 23J

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Depreciation of plant

This chapter explains the rewritten provisions that allow a deduction for the depreciation of plant.

These provisions are contained in new Division 42 in Schedule I to the Tax Law Improvement Bill 1996.




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• the rewritten provisions in Division 42 in Schedule 1 to the Tax Law Improvement Bill 1996; and

• the transitional provisions and consequential amendments for those rewritten provisions contained in Schedule 6 to the Bill.

Division 42 contains the rewritten provisions of the 1936 Act that allow a deduction for the depreciation of plant. The corresponding provisions of the 1936 Act are contained in sections 54 to 62AA V of that Act.

The rewritten provisions will be found in Division 42 of the pending 1996 Act and will be one of the capital allowances explained in Division 40 of that Act.

Part A of this chapter summarises the rewritten depreciation provisions.



Part D explains the transitional provisions which set out how and when the rewritten provisions will apply. They are located in Part 1 of Schedule 6 to the Bill.

Part E explains the amendments that need to be made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, as a consequence of the rewriting of the provisions of the 1936 Act. They are located in Parts 2 to 4 of Schedule 6 to the Bill.

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Guide to Division 42: What this Division is about


Transitionals

Key concepts

It will allow a deduction for the depreciation of plant.

If you already have plant, or acquire plant that has been previously depreciated, then you should also read the transitional provisions. [section 42-1/

The key concepts used in this Division, and their relevance, are set out in a diagram. /section 42-5/

Guide to Subdivision 42-A: Key operative provisions


The general rule

Meaning of plant

References to plant

Amount deducted

There is a ceiling on how much to deduct

There are 2 methods for calculating a deduction

This Subdivision contains the key operative provisions, including the main deduction provision. [section 42-10/

You deduct an amount for depreciation of plant if: • you are its owner or quasi-owner; and • you use it, or install it ready for use, for producing

assessable income. [section 42-15/

Plant has its ordinary meaning and includes items specifically listed in the definition [section 42-18/

Wherever plant is referred to in the Division, it means a unit of plant. [section 42-19/

Your deduction in each year is a portion of the plant's cost. [section 42-25/

Total deductions, over time, cannot exceed the cost of the plant to you. Where you use the plant otherwise than to produce assessable income, you will not be able to deduct all of its cost. [section 42-20/

They are the diminishing value and prime cost methods.

Diminishing value allows you to deduct each year a percentage of the balance of the cost you have left to deduct (ie. your undeducted cost). Prime cost allows you to deduct each year a percentage of your cost. [section 42-25/

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Different rates of depreciation apply

Plant with the same depreciation rate can be allocated to a pool

Balancing adjustments

All of the Common rules apply

Choices

Exclusions

Debt forgiveness

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Most rates are based on the effective life of the plant.

The rates for diminishing value and prime cost differ. Diminishing value rates are higher. Therefore, deductions using this method are also higher in the earlier years. {section 42-25J

A business can reduce the calculations it makes by allocating plant to a pool and making one calculation for that pool. {Subdivision 42-LJ

You must calculate a balancing adjustment for plant you have been depreciating if:

• you stop being its owner or quasi-owner; • its ownership or quasi-ownership varies; or • it is lost or destroyed. {section 42-30J

These are known as balancing a4justment events.

The Common rules for capital allowances are: • Common rule 1 - roll-over relief for related entities; • Common rule 2 - non-arm's length transactions; and • Common rule 3 - anti-avoidance ( ownership).

{section 42-35J

They are located in Division 41 of the pending 1996 Act but Common rules 1 and 2 are modified for depreciation.

Any choice to be made under this Division (eg. which calculation method to use) must be made:

• before lodging your return for the income year to which the choice relates; or

• within a further time allowed by the Commissioner.

Once made, a choice will apply for all future years. {section 42-40J

Some expenditure is excluded from deduction depending on its availability for deduction under other provisions or on the use of the plant on which the expenditure is incurred. {section 42-45J

The debt forgiveness rules in Division 245 of Schedule 2C to the 1936 Act apply to this Division. The amount of a commercial debt that is forgiven can be offset against plant. If it is, the amount offset is treated as an amount that has been deducted for depreciation. {section 42-48J

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What are other amounts deducted for d(!preciation?

Interaction with other parts of the Act


Various provisions require you to ascertain'amounts you have deducted for depreciation. There is guidance; in a non-operative section, on how to identify those amounts. {section 42-50J

Other provisions of the Act which affect your rights and obligations under this Division are listed in a nonoperative section. {section 42-55J

Guide to Subdivision 42-B: Cost of plant


The general rule

Adjustments are made when:

Adjustments may be made

if:

This Subdivision specifies how to work out the cost of plant. {section 42~60J

Generally, the cost of plant is its cost to you.

However, there are more detailed rules if: • you obtain plant under hire purchase; • there is a partial change in ownership of the plant; • the plant is on land over which you hold certain

ownership rights; • the plant was previously covered by the research and

development, trading stock or mining provisions; or • roll-over relief applies: {section 42-65J

• you acquire a car at a discount due to the sale of other plantfor less than its market value {section 42-70J;

• you acquire plant for more than its arm's length value {section 42-75J;

• the cost of a car exceeds the car depreciation limit {section 42-80J; or"

• the plant's cost can be deducted under another provision {section 42-85J.

The plant has been previously depreciated. {section 42-90J

Guide to Subdivision 42-C: Effective life


This Subdivision tells you how to work out the effective life .. of plant. {section 42-95J

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You have a choice

Self-assessment

Commissioner's determination

You may either: work out the effective life of the plant yourself; or

• adopt the effective life set by the Commissioner. {section 42-100/

To self-assess effective life you estimate how long the plant can be used for any income producing purpose on the basis of certain assumptions. You do this when you first use it, or have it installed ready for use, for producing assessable income.

The period you determine is shortened if you intend to scrap or abandon the plant within that time. {section 42-105/

The Commissioner can make a written determination of the effective life of plant. Determinations for many plant items are contained in Taxation Ruling IT 2685. {subsection 42-110(1)/

Any conditions stipulated by the Commissioner must be satisfied at the time the plant is first used or installed ready for use for income producing purposes. {subsection 42-110(2)/

Guide to Subdivision 42-D: Depreciation rates


You have a choice

Changing your choice

The general rates

Plant costing $300 or less

Cars, and motor cycles or similar vehicles

Artworks

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This Subdivision sets out the depreciation rates. {section 42-115/

If more than one rate applies, you may choose the one you prefer. You can also choose a lower rate. {section 42-120/

You must choose a new rate if your use of the plant changes so that the rate previously chosen ceases to apply. {section 42-123}

Most plant attracts the general depreciation rates. {section 42-125/

The general rates are based on the effective life of plant. Other rates can apply in certain circumstances.

The rate is 100%. {section 42-130/

Special rates apply. {section 42-135/

Special rates apply. {section 42-140/

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Plant acquired before 117/95 for scientific research

Plant used in providing employee amenities


The rate is 50% (diminishing value) or 33% (prime cost). /section 42-145/

The rate is 50% (diminishing value) or 33% (prime cost). /section 42-150/

Guide to Subdivision 42-E: Calculation of depreciation deductions


Calculation formulas

Diminishing value

Prime cost

Deduction reduced

Undeducted cost

This Subdivision establishes how to work out the amount of your deduction. /section 42-155/

There are separate calculation formulas for the prime cost and diminishing value methods. Both are based on the number of days in the income year when you were the owner or quasi-owner of the plant./sections 42-160 and 165/

The deduction is a percentage of the amount left undeducted at the start of the income year./section 42-160/

The deduction is a percentage of your cost./section 42-165/

The deduction is reduced for any period when the plant was used otherwise than to produce assessable income. /section 42-170/

Total deductions cannot exceed the balance you have left to deduct. That amount is worked out by subtracting from the cost:

• your previous deductions; • any deductions you could not claim because the plant

was used otherwise than to produce assessable income; and

• any deductions disallowed by another provision of the Act. /section 42-175/

Guide to Subdivision 42-F: Calculation of balancing adjustments


This Subdivision deals with how to calculate a balancing adjustment./section 42-180/

Balancing adjustments for some cars and pooled plant are calculated elsewhere.

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When do you calculate a balancing adjustment?

Purpose of a balancing adjustment

You must include an amount in your assessable income if:

You deduct an additional amount if:

Deduction reduced

Written down value

Termination value

Adjustments are made in these cases:

For the income year in which a balancing adjustment event occurs. {section 42-185}

It is a final accounting to ensure your total deductions· correspond to your actual loss.

The termination value (usually the sale price) of plant exceeds its written down value. The amount you include is the lesser of:

• your depreciation deductions; and • the excess. {section 42-190}

The amount you have deducted for depreciation may be increased if the research and development provisions have previously applied to the plant. {section 42-220}

The termination value is less than the undeducted cost .. The amount you deduct is the difference. {section 42-195}

You reduce this amount to the extent that you used the plant other than to produce assessable income. (subsection 42-195(3)/

This is the cost of plant, less your depreciation deductions. {section 42-200}

Usually, the termination value of plant is its sale price (less expenses of sale). Other termination values apply where you stop being the owner for a reason other than sale. {sections 42-205 and 208}

• you dispose of plant for less than its arm's length value {section 42-21O}; or

• you dispose of a car to which the car depreciation limit applied {section 42-215}.

Guide to Subdivision 42-G: Calculation of balancing adjustments for some cars

WhaUhe Subdivision will do

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This Subdivision sets out how to calculate a balancing adjustment for a car if:

• you have deducted depreciation; and • in another year, you have deducted car expenses using

either the cents per kilometre or 12% of original value method for calculating car expenses. (sections 42-225, 230 and 235)

• •

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Effect This ensures that the balancing adjustment reflects only the period during which you depreciated the car. {section 42-250/

You include an amount in The termination value (usually the sale price) of the car assessable income if: exceeds its notional written down value. {sections 42-240, 255

and 260/

You deduct an additional The termination value of the car is less than its undeducted amount if: cost. {section 42-245/

Deduction reduced You reduce the deduction to the extent that you used the car other than to produce assessable income. {subsection 42-245(3)J

Guide to Subdivision 42-H: Balancing adjustment relief


Balancing adjustment relief can:

Roll-over relief

Roll-over relief has these effects:

Offsetting against other plant

Concessional rate

This Subdivision states when balancing adjustment relief is available. {section 42-265/

• defer a balancing adjustment; or • reduce the amount included in assessable income; or • reduce tax payable. {section 42-270}

This form of relief defers a balancing adjustment calculation where:

• CGT roll-over relief applies ego if plant is transferred between related companies or by an individual to a wholly owned company; or

• there is a partial change of ownership and a joint election is made.

It is contained in Common rule I in Division 40, but is modified for depreciation purposes. {section 42-275/

• the adjustment is deferred until there is a further disposal with no roll-over relief; and

• transferees work out their deductions using the same cost, rate etc. as the transferor. {section 42-280/

Instead of including an amount in your assessable income because of a balancing adjustment, you may reduce the depreciable cost of other plant. {sections 42-285 and 290/

You can apply for a concessional basis of calculating your tax payable if, as a result of a balancing adjustment event, your business ceases. {sections 42-295 and 300/

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Guide to Subdivision 42-1: Quasi-ownership


You will be the quasiowner of plant if:

This Subdivision defines the meaning of quasi-owner. {section 42-305}

• you hold it on hire purchase; or • it is attached to land you hold under a quasi

ownership right granted by a government agency. {section 42-310}

Meaning of quasi- A lease, easement or any other right, power or privilege ownership right over land over land. {subsection 995-1(J)J

Who can depreciate plant on land held under a quasi-ownership right?

New quasi-ownership right

What if there is both an owner and a quasi-owner of plant?

The entity that attaches it to the land, and their assignees. {subsection 42-310(2)J

The grant of a new quasi-ownership right is taken as a continuation of your original right in certain circumstances. {section 42-315}

Only the quasi-owner deducts depreciation. {section 42-320}

Guide to Subdivision 42-J: Partial change of ownership


A partial change of ownership will occur when:

Effects of a partial change:

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This Subdivision sets out when a partial change of ownership of plant requires a balancing adjustment to be made. {section 42-325}

• There is some change in ownership of interests of, or interests in, plant; but

• there is a degree of continuity of ownership or interests. {section 42-330}

• A balancing adjustment calculation is required, unless all entities elect for roll-over relief; and

• the entities that are the owners of the plant after the change are taken to have acquired it from the previous owners. {section 42-335}

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Guide to Subdivision 42-K: Car depreciation limit


What is the car depreciation limit?

How is it calculated?

This Subdivision calculates the car depreciation limit. {section 42-340{

It is a ceiling on the cost of cars for calculating depreciation.

It is indexed each year for inflation based on movements in the ePI.{section 42-345/

Guide to Subdivision 42-L: Pooling


What are the advantages o/pooling?

How is plant pooled?

This Subdivision specifies how to depreciate plant allocated to a pool. {section 42-350/

Depreciation calculations can be reduced by pooling items of plant having the same depreciation rate. One calculation (using the diminishing value method) covers all plant in the pool.

By recording in writing the creation of a pool and the allocation of plant to it. {sections 42-355 and 360/

What plant can be pooled? Only plant used, or installed ready for use, exclusively for producing assessable income can be pooled. Also, you cannot pool plant in the year you acquire it. {section 42-365/

Removing plant from a pool

Calculating the deduction

Balancing adjustments

Application o/CGT

Plant is removed from a pool if it ceases to be used, or installed, exclusively for producing assessable income. You can also choose to remove it at any time. {section 42-370/

The deduction is calculated by multiplying the amount left to deduct ill the pool by the diminishing value rate for the class of items. {sections 42-375, 42-380 and 42- 385/

There are special rules for calculating balancing adjustments for pooled plant. The amount to be included in assessable income is the lesser ofthe termination value of the plant and its cost. {section 42-390/

For the purposes of calculating a capital loss on an item of pooled plant that is disposed of, you reconstruct the amount of depreciation for that item. {section 42-395/

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B DIscussion of changes

Subdivision 42-A Key operative provisions

llO

This Subdivision contains the key operative provisions, including the main deduction provision.

1. Change All the key operative provisions are being conveniently collocated.

Explanation In the existing law, the operative provisions are scattered and this is an obstacle to readers' understanding of how the law operates.

To overcome this, all the main elements of the depreciation law have been reassembled:

• the conditions for deductibility /section 42-15};

• the meaning of plant /sections 42-18 and 19};

• how much you deduct /section 42-20}; • how to calculate your deduction /section 42-25};

• when to calculate a balancing adjustment /section 42-30}; • the capital allowance Common rules that apply /section 42-35};

• the timing and effect of choices /section 42-40}; • plant for which depreciation is not available /section 42-45}; and • signposting of other relevant provisions /sections 42-50 and 55}.

2. Change Some of the key concepts will be given new labels.

Explanation The new terms and their old law equivalent are:

New Term Old law equivalent

quasi-owner Crown lessee

termination value consideration receivable

undeducted cost (notional) depreciated value

written down value (actual) depreciated value

3. Change Wherever the term associate is used in this Division it will have a standardised meaning.

Explanation

The term is used in the cost and termination value tables. Under the existing law, it takes on the meaning in subsection 26AAB(14) of the 1936 Act. The

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rewrite uses a standardised definition that is explained in Part B of Chapter 4 dealing with leased cars.

The existing law extends the meaning of associate for depreciation purposes to include: • associated government authorities (subsection 54AA(6)); and • reconstituted partnerships (subsection 54AA(7)).

The first extension is preserved in the rewrite by the use of the new term associated government entity. The second is preserved by section 42-415 of the pending Income Tax (Transitional Provisions) Act 1996.

Section 42-15 Deduction for depreciation

This section sets out the conditions you must satisfy to claim a depreciation deduction.

1. Change The application of the law to entities that do not own plant, but can claim depreciation, will be more directly expressed. The drafting device of deeming them to be owners will be discontinued.

Explanation The deeming device is unhelpful to readers.

The new law will deal expressly with entities that, although not owners of plant in a full sense, are able to claim depreciation. They are referred to as quasi-owners. Crown lessees are in this category.

2. Change Depreciation will be expressly allowed to hire purchasers.

Explanation The long standing administrative practice under which depreciation is allowed to hirers under a hire purchase agreement as if they were owners is being affirmed by a specific provision to that effect. They will be the second category of quasi-owner.

This does not affect other established administrative practices as to what is an acceptable lease for income tax purposes.

Section 42-19 References to plant

References to plant will mean a unit of plant.

Change References to plant are to be read as if they were to a unit of plant.

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Explanation The deduction is available for a unit of plant (and this is specifically stated).

The referencing technique used for the rest of the Division avoids having to use the cumbersome expression unit of plant throughout, but nonetheless makes it clear that the calculation and its components all relate to a unit.

Section 42-30 Balancing adjustments

This section sets out when a balancing adjustment is required.

Change The requirement to make a balancing adjustment calculation will specifically cater for hire purchase (see section 42-15, change 2).

Explanation The existing law requires a balancing adjustment if you dispose of plant, or it is lost or destroyed. Under the new law, a balancing adjustment will also be required when:

• the owner of plant lets it under a hire purchase agreement (the depreciation entitlement is transferred from the owner to the hirer); and

• the hirer ceases to be a quasi-owner, for example, where the hirer loses possession without obtaining title (depreciation entitlement reverts to the owner).

Section 42-35 Application of Division 41 Common rules

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This section sets out which COIl'mon rules apply to depreciation.

Change All of the Common rules for capital allowances will apply to this Division.

Explanation Common rules for capital allowances are a new feature of the law. Their purpose is to standardise, and avoid repetition of, provisions that apply to more than one capital allowance. There are 3 Common rules:

• Common rule 1 deals with balancing adjustment roll-over relief where property is transferred between related entities;

• Common rule 2 deals with the non-arm's length acquisition and disposal of property; and

• Common rule 3 deals with certain anti-avoidance provisions that apply to the owner of property.

The Common rules are contained in Division 41 of the pending 1996 Act. Common rules 1 and 2 are modified to ensure they apply to depreciation

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consistently with the existing law (see discussion on sections 42-75, 42-210, 42-275 and 42-280) in this chapter.

Section 42-40 Choices

This section states when choices, permitted or required under this Division, need to be made.

1. Change Broadly similar concepts to do with electing, nominating or giving notice that you have adopted a particular course of action will be standardised.

Explanation Under the existing law, there are different provisions and terms covering what is essentially the same thing. Standardising these will make the law clearer.

2. Change The timing of choices will be standardised to the time you lodge your income tax return for the relevant year (or within further time allowed by the Commissioner).

Explanation Standardising will simplify the law and make compliance easier. To achieve this requires change to the existing time limits for:

• electing to use the Commissioner's determination of effective life; and • giving notices that plant is being pooled.

The existing law requires those choices to be made within 6 months after the end of the income year to which they relate (or within further time allowed by the Commissioner). In practice, choices must be made by the time you lodge your return and are evidenced by the information contained in it.

3. Change You will be able to choose diminishing value and prime cost methods for different items of plant that become depreciable in the same year.

Explanation The existing law requires that you apply the same method to all units of plant that become depreciable in the income year. This is an unnecessary constraint.

4. Change The choice to self-assess the effective life of plant will be irrevocable .

Explanation See discussion on section 42-100 (change 2 in this chapter).

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Section 42-48 Debt forgiveness: amounts deducted for depreciation

This section treats an amount applied against depreciable plant under the debt forgiveness rules as an amount deducted for depreciation.

Change An amount of debt forgiven, that is applied against depreciable plant under the debt forgiveness rules, will be accounted for as an amount deducted for depreciation for all relevant purposes.

Explanation Under the debt forgiveness rules (introduced in the Tax Laws Amendment Bill (No. 2) 1996) such an amount is taken to be an amount of depreciation for the purposes of calculating a deduction using the diminishing value method.

This change will ensure that the amount is taken into account in determining the amount available for deduction (ie. the undeducted cost) regardless of the calculation method used.

Subdivision 42-B Cost of plant

This Subdivision specifies how to determine the cost of plant.

Change This Subdivision will bring together all provisions which allocate a cost to plant in particular circumstances.

Explanation The amount you can deduct in an income year is based on your cost. Under the existing law, the various rules for determining cost are scattered. Bringing them together will be convenient for readers. It also identifies the order in which the rules are to be applied.

Section 42-65 How to work out your cost

114

This section sets out the rules for determining the cost of plant and the provisions that adjust them.

1. Change For plant you acquire with (or attached to) other assets without a specific value being allocated to it, the cost will be so much of the overall cost of all the assets as is reasonably attributable to it. [table: item 2/

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Explanation The existing law does not give taxpayers guidance on the cost of plant they acquire with (or attached to) other assets without a specific value being allocated to it. However, where plant is sold in such circumstances, subsection 59(3) of the 1936 Act allows the Commissioner to fix its termination value. This discretion will be removed and replaced with an objective rule, see discussion on section 42-205. Section 42-65 will apply the same objective basis to an acquisition.

2. Change A specific cost rule will be added to cover plant you hire under a hire purchase agreement. The cost will be its purchase price under the agreement, excluding any terms charges. Itable: item 3J

Explanation This change flows from expressly extending depreciation to a person who hires plant under a hire purchase arrangement (see section 42-15). Hirers will have the same cost as someone who purchases plant.

The new law will not include the existing administrative practice that allows terms charges under the agreement to be capitalised and depreciated as part of the plant's cost. Revenue expenses attract a deduction under the general deduction provisions.

3. Change There will be a cost rule for plant you acquire as a result of the operation of the partial change of ownership rule in Subdivision 42-J. The cost will be the market value immediately before acquisition.ltable: items 4 and 8J

Explanation A partial change in the ownership of plant, may require a balancing adjustment calculation to be made. The existing law sets a termination value for that purpose.

Also, the entities that are the owners of the plant after the change are taken to have acquired it from those that were its owner before. However, the existing law is silent about the acquisition value. The acquisition value will be the same as the disposal value.

4. Change There will be a specific cost for plant you acquire in circumstances where Common rule 1 applies. The cost will be the transferor's cost regardless of the calculation method previously used. liable: item IIJ

Explanation Common rule 1 will provide roll-over relief for plant transferred between related entities. If Common rule 1 applies, the requirement to calculate a balancing adjustment is deferred until the plant is disposed of again in circumstances that do not attract roll-over relief.

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The existing law requires a transferee to depreciate plant on the same basis as the transferor. If a transferor used the diminishing value method to calculate depreciation, the transferee's cost is the transferor's depreciated value.

As depreciated value is not used as a concept in the new law, the same result will be achieved by requiring the transferee to:

• use the transferor's cost; and • reduce what would otherwise be the transferee's undeducted cost by

amounts of depreciation claimed by the transferor and any further amounts the transferor could have claimed had the plant been used wholly for producing assessable income.

Section 42-75 Adjustment: non-arm's length transactions

This section modifies Common rule 2 in its application to this Division. Common rule 2 will adjust the cost of plant if the parties to the acquisition were not dealing at arm's-length.

1. Change Common rule 2 will apply only if the plant is actually acquired under the non-arm's length transaction.

Explanation Under the existing law, the arm's length rules for depreciation have a wider application. They apply if the cost of the plant is attributable, in any way, to any transaction to which the taxpayer was a party, even if that transaction is not the one under which the plant is acquired.

This change is a result of standardising through Common rule 2.

2. Change Common rule 2 will be modified so that it:

• applies to cost rather than expenditure; and • substitutes the amount that would have been the cost had the parties

been dealing at arm's length.

Explanation These modifications ensure that, in these respects, Common rule 2 applies to depreciation consistently with the existing law.

Section 42-85 Adjustment: double deduction

116

This section reduces depreciation deductions for plant to the extent that its cost has been deducted under another provision.

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Change An unnecessary reference to the cost of extending a telephone line deducted under section 70 of the 1936 Act will be omitted.

Explanation A drafting device in subsection 56(3) ensures that, to the extent that the cost of telephone lines could be depreciated under section 54 or deducted under section 70, the cost is to be depreciated. This has been omitted because its presentation is confusing. The same result has been achieved by making this aspect clear in the rewritten telephone lines provisions. {paragraph 387-4JO(J)(b)J

Section 42-90 Adjustment: previously depreciated plant limit

This section will allow the Commissioner to limit the cost of plant that has been depreciated by someone else.

Change You will be able to depreciate such plant on the basis of its cost to you. The Commissioner will have a discretion to reduce that cost in certain circumstances.

Explanation The existing law expressly limits the cost of previously depreciated plant to the vendor's written down value plus any balancing adjustment included in their assessable income. The Commissioner has a discretion to allow the plant to be depreciated on the basis of its cost to the purchaser.

Most taxpayers base depreciation claims on their cost without seeking the exercise of the Commissioner's discretion (as it is only refused in limited circumstances). This change will reflect that practice.

You will be taken to have acquired previously depreciated plant at its cost to you, unless the Commissioner exercises a discretion to restrict your cost to the vendor's written down value plus balancing adjustment.

The Commissioner will be directed to take into account:

• your relationship with the person from whom you acquired the plant; • the price paid; and • whether the person from whom you acquired the plant still has use and

enjoyment of it.

Subdivision 42-C Effective life

This Subdivision explains how to work out the effective life of plant. Most depreciation rates are based on the plant's effective life. You can either work out the effective life yourself or adopt the Commissioner's determination of it.

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Change Excessively detailed rules as to how the Commissioner is to specify the effective life of plant will be omitted. Those rules cover:

• criteria that may be used in specifying an effective life; • conditions attaching to a specification; • adding a specification for particular plant; and • from when a determination may apply.

Explanation The same result can be achieved economically under the general administrative powers and obligations.

Section 42-100 Choice of method

There are two methods for determining the effective life of plant.

1. Change You can choose the method you prefer without the need to make a written election.

Explanation The existing law requires you to elect in writing to use the Commissioner's determination of effective life. In keeping with the self-assessment system, requirements to elect for certain courses of action will be omitted from the depreciation provisions. The new law will allow you to choose the method you prefer and the time for making that choice will be standardised. {section 42-40)

Omitting the requirement to formally record this choice will reduce compliance costs. Your choice will be evidenced by the depreciation rate at which you calculate your deduction and the records you already keep under general record keeping provisions.

2. Change The choice to self-assess the effective life of plant will be binding.

Explanation This change flows from standardising the choice rules. In the existing law, your only choice is to use the Commissioner's determination. If you don't make this choice, you are taken to have self-assessed the plant's effective life. The new law gives you the option to make either choice. The choice is permanent. {section 42-40)

Subdivision 42-D Depreciation rates

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This Subdivision sets out the rates that are available for calculating your depreciation deduction.

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1. Change The depreciation rates for both diminishing value and prime cost will be included in the new law.

Explanation Depreciation rates differ depending on whether you calculate your deduction using the diminishing value or prime cost method. The existing law specifies only diminishing value rates. If you choose the prime cost method, you must make a calculation to convert from the diminishing value rate.

In the rewrite, each prime cost rate has been inserted next to its diminishing value equivalent.

2. Change The requirement to use the higher rate where more than one rate can apply has been omitted.

Explanation If more than one rate can apply, you will be able to choose whichever you prefer.

3. Change The requirement, in the special rate for artworks, to make calculations to two decimal places has been removed.

Explanation As the general rates are expressed in whole percentages the requirement to calculate to two decimal places is pedantic.

4. Change You can choose a rate lower than that which applies to your plant.

Explanation The existing law allows you to nominate a lower rate than that which is prescribed, but limits how low the rate can be. This is an unnecessary restriction.

Subdivision 42-E Calculation of depreciation deductions

This Subdivision sets out how to calculate your depreciation deduction.

1. Change The meaning of the term depreciated value will be clarified.

Explanation In the existing law, depreciated value has two meanings:

• if plant is used wholly for income producing purposes, it means actual depreciated value; otherwise, it means notional depreciated value.

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It is a guiding principle for rewriting the law that words will not have different meanings in different contexts.

Therefore, the new law will use written down value for actual depreciated value and undeducted cost for notional depreciated value.

2. Change The rules that restrict your deduction to the period when you own the plant and use it for producing assessable income will be clearly spelt out.

Explanation The existing law reduces your deduction so that it reflects only the period in the income year when you own the plant and use it to produce assessable income. However, the provisions that achieve this are not collocated and their interaction is not expressed clearly.

These problems will be addressed by a two step approach:

• First, you will calculate your deduction for the number of days you were the owner or quasi-owner of the plant; and

• Second, you will reduce that amount to the extent that you did not use the plant, or install it ready for use, to produce assessable income.

Any amount denied under step 2 because the plant was used for a purpose other than producing assessable income will not be available for deduction in future income years (see change 3 below).

3. Change The cost of plant will be expressly reduced to reflect any period during which it is used or held for a purpose other than of producing assessable income. No depreciation deduction will be allowed for that period.

Explanation The existing law is applied in this manner.

The change will make the concept of undeducted cost central to the calculation process. It will be your cost, less:

• the sum of amounts you have deducted; • any amounts you cannot deduct because you used the plant otherwise

than to produce assessable income; and

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• any amounts you cannot deduct because another provision prevented a deduction (eg. plant used for leisure facilities)./section 42-175/ I

You will not be able to deduct more than the undeducted cost.

In working out the amounts referred to in the second and third points above, you apply the rate and method used in the income year in which depreciation first became allowable to you for the plant. If you acquired the plant before 27 February 1992, special transitional rules apply, see discussion in Part D of • this chapter.

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Subdivision 42-F Calculation of balancing adjustments

This Subdivision explains how you calculate a balancing adjustment if you cease to be the owner of plant or it is lost or destroyed.

Change All termination values used in calculating your balancing adjustment will be brought together in a single table.

Explanation These values are in a number of different places in the existing law. The table will link particular values to the circumstances in which you have ceased to be the owner. In addition, the table indicates adjustments that may substitute another value. Those adjustments are set out after the table.

Section 42-205 Meaning of termination value

This section sets out the various termination values to be used in calculating balancing adjustments.

1. Change There will be a termination value for plant that is sold attached to other assets without a specific value being allocated to it. {table: item 2{

Explanation The existing law allocates a value for plant sold with other assets. The Full Federal Court in Pearce v Federal Commissioner o/Taxation 85 ALR 359 said that this value extended to plant that was attached to the other assets it was sold with. However, the Court said the provision would be clearer if it read 'where property is sold with or attached to other assets'. This change will give effect to the Court's recommendation.

2. Change The Commissioner's discretion in setting a termination value for plant sold with (or attached to) other assets has been removed and replaced with objective criteria. {table: item 2{

Explanation Under the existing law, if plant is sold with other assets without a separate value allocated to it, its termination value is determined by the Commissioner. Consistent with a self-assessment regime, this discretion will be removed and replaced with objective criteria.

The amount generally determined by the Commissioner is that portion of the sale price reasonably attributable to the individual item of plant. This will be the termination value in the new law, consistent with similar termination value rules in the mining provisions and the capital gains tax provisions.

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3. Change There will be a specific tennination value for plant when an owner sells it by way of a hire purchase agreement. The value will be the sale price under the agreement, less the reasonably attributable expenses of sale. {table: item 6/

Explanation The new law will extend depreciation to persons who hire plant under a hire purchase agreement. Entering into a hire purchase agreement will correspondingly require the owner to calculate a balancing adjustment (if they have been depreciating the plant).

4. Change There will be a tennination value for plant you cease to hold under a hire purchase agreement. The value will be an amount detennined by a fonnula contained in section 42-208. {table: item 7/

Explanation The new law will extend depreciation to persons who hire plant under a hire purchase agreement. However, if you cease to hold the plant under the agreement and do not become its owner ego it is repossessed, then a balancing adjustment calculation will be required.

The tennination value is designed to ensure that hirers receive depreciation deductions only to the extent of their capital outlay.

The operation of the fonnula is explained in the following example:

Example Assumptions

I. Cost of plant 2. Interest 3. Payments 4. Defaults after 2 years 5. Market value of plant

at time of default 6. Recourse

$50,000 12% per annum 48 x $1322.49

$25,000

per month

Termination Value = Agreement Amount

- Payable Amount + Refund Amount

Agreement Amount =

Total amount payable under the agreement plus amounts which become payable ie. repossession costs less amounts paid under the agreement and rebate of terms charges

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$63,479.52

31739.76

~

63,729.52

35.178.41

28,551.11

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Payable amount =

Total amount payable less value of plant

Refund amount

Termination value =

Agreement amount less Payable amount

Checksum for total capital outlays

Capital component of instalments

Amount left to pay

less non rebatable interest

and repossession

plus capital component of amount left to pay

Total capital outlay

Depreciation

20% Prime Cost (6-10 yrs effective life)

Cost Depreciation yr 1

Depreciation yr 2 Written down value at the time of default

Termination value from formula

Balancing adjustment (as termination value is less than WDV)

Checksum for depreciation

Total depreciation 2 years at 10,000 Plus balancing adjustment Total

costs


28,551.11 25000.00

NIL

28,551.11

ill.lJl

3,551.11

NIL mQQ

3,551.11

25,000.00

21,698.89

$25,000.00

50,000.00 10,000.00 40,000.00 10000,00 30,000.00

25,000.00

5,000.00

20,000.00

~ $25,000.00

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5. Change There will be a specific termination value for plant attached to land held under a quasi-ownership right that the holder assigns to an associate. The value will be the market value immediately before the assignment, worked out as if the holder had the freehold interest./table: item 9/

Explanation Under the existing law, the rules for placing a termination value on plant attached to land are not identical in two similar cases. The first is where a quasi-owner assigns his or her right to an associate. The second is where a new quasi-ownership right is granted to the associate following expiry, surrender or termination of the previous holder's right.

As the same outcome is appropriate in each case, the rules are to be standardised. In each of these situations, the termination value will be the market value of the plant at the time of the event, the value being calculated as if the quasi-owner owned the land.


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This section modifies Common rule 2 for capital allowances in its application to this Division. Common rule 2 will adjust the termination value if parties to the disposal of plant were not dealing at arm's length.

1. Change Common rule 2 will be extended to a situation where the owner of plant lets it out on hire purchase.

Explanation To complement the express allowance of depreciation to persons who hire plant under hire purchase agreements, this section will ensure that owners who sell and owners who enter into hire purchase agreements are treated in the same way in the case of non-arm's length transactions.

2. Change Common rule 2 will be modified so that it only applies:

• to disposals by sale and disposals where a hire purchase agreement is entered into; and

• if the party disposing of the plant incurred a cost.

Explanation This ensures that hire purchase is accommodated and, in all other respects, Common rule 2 applies to depreciation consistently with the existing law.

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Section 42-250 Reduction to take account of days when depreciation not claimed

This section ensures that the amount of your balancing adjustment for some cars relates only to the period you actually depreciate the car. This will be done by reducing your balancing adjustment for the period you used the cents per kilometre or 12% of original value methods for claiming car expenses.

Change Replace the Commissioner's discretion with objective criteria in the provision that reduces your balancing adjustment for some cars.

Explanation In the existing law, this provision is in the form of a discretion contained in subsection 59AAA(5) of the 1936 Act. Guidance on the exercise of the discretion is contained in subsection 59AAA(6). The objective criteria are based on that guidance. The removal of administrative discretions is one of the aims of the rewrite of the law.

Section 42-275 Modifications of Common rule 1

This section modifies Common rule 1 (roll-over relieffor related entities) for depreciation.

Change Common rule 1 will be modified to:

• exclude a section (41-40) that has been more fully explained in the depreciation provisions;

• exclude a section that has no application to depreciation (section 41-45);

• include a provision allowing pro-rating in the year of transfer; and • include further record-keeping provisions.

Explanation Common rules for capital allowances are a new feature of the law and are contained in Division 41. Common rule 1 has been modified to ensure that it applies to depreciation consistently with the existing law.

Section 42-280 Additional consequences

This section sets out consequences which will follow if roll-over relief is available under Common rule 1. Roll-over relief defers a balancing adjustment where plant is transferred to a related entity.

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Change The manner in which a transferee is required to calculate a deduction will be better explained by adding details to the application of Common rule 1.

Explanation Common rules for capital allowances are a new feature of the law and are contained in Division 41. These additions to the Common rules ensure that roll-over relief continues to apply to depreciation consistently with the existing law.

Section 42-285 Section 42-290

Same year relief Later year relief

These sections deal with a form of balancing adjustment relief which allows amounts that would otherwise be included in assessable income to be offset against other plant.

Change Without altering the practical effect of the offset rules, ambiguity as to their operation is being removed.

Explanation In the existing law, if a taxpayer elects for this form of relief, there are two consequences. First, the amount otherwise to be included in assessable income is offset against the cost of replacement plant. This means deductions are not available for the amount of the offset. Second, the amount of the offset is treated as depreciation allowed for that unit of plant. This enables the amount of the offset to be recouped in appropriate cases.

The new law will more simply achieve the correct result by treating the offset as an amount of depreciation that has been deducted. For those who use the diminishing value method, that amount will be taken into account in working out opening undeducted cost (upon which. the calculation is based). For those who use the prime cost method, cost will be reduced/or the purposes 0/ calculation only (see paragraph 42-165(3)(a)). When calculating undeducted cost or written down value to work out a balancing adjustment, the cost will be as determined wider Subdivision 42-B, not the reduced cost.

Section 42-310 Meaning of quasi-owner

This section defines quasi-owner.

Change There will be 2 categories:

persons who hold plant under a hire purchase agreement; and

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persons who hold a quasi-ownership right over land to which the plant is attached.

Explanation This new term will describe persons who do not own plant,but are entitled to . depreciate it. The term avoids the drafting technique used in the existing law (in the Crown lease provisions) of deeming such persons to be owners.

Established administrative practice allows persons who hold plant under hire purchase to depreciate it. Legislative backing to that practice is to be given by making these persons one category of quasi-owner. However, giving legislative backing to these arrangements is not intended to limit in any way the scope of the term 'owner'. This. will be stated specifically in the law to . ' make it clear that the meaning of 'owner' is not to be affected by either allowing hirers to claim the deduction or by calling them and Crown lessees quasi-owners.

Persons who hold a quasi-ownership right over land to which the plant is attached are currently referred to as 'Crown lessees'. This is not an entirely accurate term. In future, they will be the second category of quasi-owner.

Section 42-320 Only one entity can deduct

This section ensures that a quasi-owner of plant, and not the owner, claims depreciation for it.

Change If there is bOth an owner and a quasi-owner of plant, only the quasi-owner will be able to depreciate it.

Explanation ' It is possible to have both an owner and a quasi-owner using plant to produce assessable income. Where this happens in the existing law, the Crown lease provisions makeit clear that the Crown lessee is the person entitled to deduct. Also, existing administrative practice with respect to hire purchase allows the hirer to claim the deduction.' Therefore, the rewrite reflects the . existing law and current practice.

Subdivision 42-J Partial change of ownership

This Subdivision sets out when a partial change in the ownership of plant will result in a requirement to make a balancing adjustment calculation .

Change The Subdivision will also apply where there is a partial change in the quasiownership of plant.

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Explanation This change flows from using the term quasi-owner to refer to entities that may be entitled to claim depreciation of plant, even though they do not own it. The partial change rule will make specific reference to quasi-owners.


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Some provisions of the existing law have not been included in the new law because they have little, or no, ongoing application. They are summarised in the following table:

Provision

Section 57 AK

Section 57 AM

Section 62AAA

Subject

Accelerated depreciation of plant used in the production of some basic iron and steel products.

Accelerated depreciation of Australian trading ships.

Reduces the cost of plant by the amount of any compensation received under the Decimal Currency Board Act 1963.

Reason for omission

It only applies to plant installed before I July 1992.

It will only apply to ships registered and delivered before I July 1997. Deductions for these ships will continue to be made under the 1936 Act.

The Decimal Currency Board Act was repealed in 1981.

Some other provisions have been omitted from the new law because they are either transitional or unnecessary. They are summarised in the following table:

Provision

Subsections 54(6), (10)

paragraphs 57AF(l2)(a), (b), (c)

Subsection 58(5)

Section 62AAJ

Reason for omission

Transitional provisions with no further application.

Unnecessary because sections 57 AK and 57 AM have been omitted.

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Subsections 54(IA), 54AA(1A), 56(IAAA), 59(1A), 59AAA(1A), 62(1A), 62AAM(IA), 62AAN(2), 62AAP(IA),62AAR(2)

Subsections 54(2A), 57 AF(9)

Section62AA V

Subsections 54A(3), (5), (6), (7), (8), (9), (10), (13), (14)

Subsection 262A (4AE)

Subsections 57 AF(1 I), 59AA(3)

paragraph 59(5)(b)


Unnecessary because the depreciation provisions are subject to the debt forgiveness rules without the need for these specific application provisions.

Unnecessary because the concept is implicit without the need for a specific provision.

Unnecessary because they are covered by the Commissioner's general administrative powers and obligations.

Unnecessary because the new law does not require your choice about effective life method to be in writing (see discussion on section 42-100 in Part B of this chapter).

Unnecessary because they contain a discretion allowing the Commissioner to determine an amount if there is insufficient evidence of market value.

Part 1 of Schedule 6 to the Tax Law Improvement Bill 1996 will amend the pending Income Tax (Transitional Provisions) Act 1996 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter. [Schedule 6,

. Part 1: item 2}

When explaining how a specific provision of the new law is to apply, the transitionals use the same section number as that provision.

Convenient labels will be given to the existing law and the new law to make it easier to refer to them in these transitional provisions. [Schedule 6, Part 1: section 42-1, pending Transitional Provisions Act}

Application

The rewritten provisions will apply to depreciation deductions for the 1997-98 and later income years .

There are 2 exceptions:

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deductions for Australian trading ships (which will continue to be claimed under section 57AM of the 1936 Act); and

• deductions for plant held under a hire purchase agreement entered into before the commencement of the 1997-98 income year (which will continue to be claimed as they are at present). {Schedule 6, Part 1: section 42-2, pending Transitional Provisions Act J 996}

Plant being depreciated under existing law

The transitional provisions will explain how taxpayers who depreciate plant under the existing law can continue to depreciate it under the new law.

In broad terms, taxpayers will continue to depreciate plant under the new law on the same basis as they do under the existing provisions (that is, using the same calculation method, cost and rate of depreciation). {Schedule 6, Part J: section 42-6, pending Transitional Provisions Act}

There is an exception where taxpayers acquired their plant under section 58 of the existing law (roll-over relief). At present, the transferee's cost would be the transferor's written down value if the transferor was using the diminishing value method. This ensures that the transferee cannot deduct amounts already deducted by the transferor.

To achieve the same outcome, under the new law, the transferee's cost will be the transferor's cost, but their total deductions will be limited to the plant's undeducted cost. Undeducted cost will include deductions claimed by the transferor. (Schedule 6, Part J: subsection 42-6(4), pending Transitional Provisions Act}

Plant depreciated under the new law

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The pending transitional provisions also have rules for taxpayers who start depreciating plant under the new law, but either:

• before the new law commences, used it but were not entitled to depreciate it; or

• after the new law commences, acquire it in circumstances that attract rollover relief in Common rule 1.

Plant used by you before the new law

This rule will apply if you owned and used plant only for non-depreciable purposes, but after the start of the new law, you used it for depreciable purposes. (Schedule 6, Part 1: subsection 42-7(/), pending Transitional Provisions Act}

In calculating your deduction under the new law you use the same cost and rate as you would have if you had depreciated it under the existing law. {Schedule 6,

Part J: subsections 42-7(3), (4) and (5), pending Transitional Provisions Act}

Also, if you acquired the plant under the roll-over relief contained in section 58 of the existing law, you must use the same method, when you start depreciating it under the new law, as the transferor used. {Schedule 6, Part 1: subsection 42-7(2), pending Transitional Provisions Act}

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These provisions will put taxpayers in the position they would have been in had they started to depreciate the plant under the existing law from when they first used it.

Plant used by transferor before the new law

This rule will apply if: • you acquire plant in circumstances where Common rule 1 (roll over relief

for related entities) applies to the acquisition; and • the transferor (or an earlier transferor) owned and used the plant before the

new law starts.

You depreciate the plant on the same basis as the transferor. Therefore, the option to self-assess effective life will not be available to you if it was not available to the transferor and in determining your rate, you assume that you acquired the plant when the transferor did. [Schedule 6, Part 1: section 42-8, pending Transitional Provisions Act}

Effective life

Rate

As with the existing law, self-assessment of effective life is not available for plant acquired before 13 March 1991. [Schedule 6, Part 1: section 42-95, pending Transitional Provisions Act}

Whether you acquire plant before 27 February 1992 is usually a question offact, but there are special rules in section 66 of the Taxation Laws Amendment Act (No. 2) 1992 which will continue to have effect under the new law in determining whether plant was acquired or constructed before that date. Section 66 will be relevant:

• where the transitional provisions require you to use a rate worked out under the existing law; and

• in ensuring that plant acquired or constructed before 27 February 1992 cannot be pooled with plant acquired after that date. [Schedule 6, Part 1: section 42-400, pending Transitional Provisions Act}

Also, there is a special transitional provision which ensures the continued operation of section 66 for plant acquired after the commencement of the new law. [Schedule 6, Part 1: section 42-120, pending Transitional Provisions Act}

Actual amounts deducted under the old law

Amounts deducted as depreciation under the existing law will be treated as deductions under the new law. [Schedule 6, Part 1: sections 42-9 and 175, pending Transitional Provisions Act}

If roll-over relief applied to your acquisition of the plant, then any amounts deducted by the transferor (and any earlier successive transferor), under the existing law, will be taken to have been deducted by you under the new law. [Schedule 6, Part 1: paragraphs 42-9(2)(c) and 175(J)(d), pending Transitional Provisions Act}

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As a consequence: balancing adjustments will apply where plant, written off under the existing law, is disposed of after the new law starts; and

• amounts deducted, under the existing law, will be taken into account in a balancing adjustment calculation required under the new law.

Also, plant depreciated under the existing law will be previously depreciated plant for the purposes of section 42-90 which will allow the Commissioner to set a cost for previously depreciated plant. (Schedule 6, Part I: subsection 42-90(1), pending Transitional Provisions Act}

Notional amounts deducted under the old law

For the purpose of working out your undeducted cost, you must take into account any further amounts you (and the transferor and any earlier transferor) could have deducted under the existing law had the plant been used wholly to produce assessable income. {Schedule 6, Part 1: section 42-175,pending Transitional Provisions Act}

In working out those amounts, you use the same method and rate you used when a depreciation deduction first became allowable for the plant. However, for plant acquired before 27 February 1992, the broadbanding rules in subsections 55(5) and (8) of the 1936 Act (as it applied immediately before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1992) are optional in working out a notional amount for any year for which you did not claim a depreciation deduction. In any income year for which a deduction is allowable and a notional write down is also required, the notional write down is calculated at the same rate as the deduction. (Schedule 6, Part 1: subsections 42-175(3) and (4), pending Transitional Provisions Act}

There is another notional amount under the existing law that will be treated as a notional amount under the new law (see discussion on quasi-owners, section 42-310). (Schedule 6, Part 1: subsection 42-175(2), pending Transitional Provisions Act 1996}

Amounts included in assessable income under old law

The new law will allow the Commissioner to reduce the cost of previously depreciated plant that you acquire, to the vendor's written down value plus balancing adjustment.

References to amounts included in the vendor's assessable income as the result of a balancing adjustment will include:

• amounts included under the existing law; and • amounts that would have been included in the absence of balancing

adjustment relief. (Schedule 6, Part 1: subsection 42-90(4), pending Transitional Provisions Act 1996}

References to the new law include the old law

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References in the new law to rewritten provisions include their old law equivalent. (Schedule 6, Part 1: sections 42-45, 220, 235, 255, 290 and subsections 42-90(2), (3), and 310(2), pending Transitional Provisions Act}

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Common rules

Common rule 1 (roll-over relief) and Common rule 2 (non-arm's length transactions) will also apply to plant even though it has only been depreciated under the existing law. {Schedule 6, Part I: sections 42-405 and 410, pending Transitional Provisions Act}

Also, if Common rule 1 applies, the transferee will use the same effective life as the transferor in determining their rate. {Schedule 6, Part 1: section 42-280, pending Transitional Provisions Act}

Debt forgiveness

Any amount applied against plant expenditure under the debt forgiveness rules before the commencement of the new law will be treated as an amount deducted for depreciation under the old law. This ensures that these amounts are taken into account, under the new law, in working out how much you have left to deduct and the amount of any balancing adjustment. {Schedule 6, Part 1: section 42-48, pending Transitional Provisions Act}

Pooling

The new law continues the system for the pooling of items of plant that carry the same depreciation rate. There is a series of transitional rules that preserve pools created under the existing law. Those rules are explained in the following table:


42-355

42-360

42-365

42-370

42-375

42-380

About

Creating a pool

Allocating plant to a pool

Plant eligible for allocation

Removal of plant from pool

Calculating deductions

Meaning of opening balance

Rule

Pools created under the existing law are carried into the new law

Plant allocated to a pool under the existing law will remain allocated to it for the new law.

It will continue to be the case that plant acquired on or before 26 February 1992 cannot be pooled with plant acquired after that date.

Plant acquired on or before 26 February 1992 will be removed from a pool if its annual depreciation percentage under the existing law ceases to match the pool percentage.

For plant acquired on or before 26 February 1992, the pool percentage will be a prime cost rate. Those rates will be converted to diminishing value rates for the purpose of making the calculation under the new law .

In working out the opening pool balance for the first year of the new law, the starting point will be the closing balance for the preceding year worked out under the existing law.

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Plant

Plant will include structural improvements used in relation to forest and pearling I operations only if they were completed after the dates specified in the existing law. {Schedule 6, Part 1: section 42-18, pending Transitional Provisions Act}

Commissioner's determination of effective life

Taxation Ruling IT 2685 continues under the new law as a determination of the effective life of plant. {Schedule 6, Part 1: section 42-110, pending Transitional Provisions Act}

Quasi-owners

The new law introduces the term quasi-owner of plant. Quasi-owners are entitled to depreciate plant they do not actually own. Crown lessees under the existing law are one category of quasi-owner. These rules apply to that category.

Persons ineligible to depreciate plant under the anti-avoidance tests in section 54AA, also do not qualify as a quasi-owner. This ensures that persons not entitled to a deduction under the existing law do not become entitled inappropriately under the new law. {Schedule 6, Part 1: subsection 42-310(J),pending Transitional Provisions Act}

One aspect of the anti-avoidance test requires you to compare the period for which an entity has been granted use of the plant with its effective life. The definition of effective life does not apply to plant acquired before 13 March 1991. Therefore, in applying the test, you will need to work out an effective life for the plant as if the new law applied. '{Schedule 6, Part 1: subsection 42-310(3), pending Transitional Provisions Act}

There was a requirement that plant in existence at the start of the Crown lease provisions be notionally written down before a depreciation deduction could be claimed under those provisions. The amount of that notional write down was treated as an amount deducted for depreciation. It will also be treated as an amount deducted under the new law for the purpose of working out undeducted cost. {Schedule 6, Part 1: subsection 42-175(2), pending Transitional Provisions Act}

Also, the new law will reduce a deduction resulting from a balancing adjustment calculation if, while you were the owner or quasi-owner of the plant, you used it for a purpose other than for producing assessable income.

That reduction is extended to any period when you were deemed to be the owner of plant under the existing law by section 54AA.{Schedule 6, Part 1: section 42-195, pending Transitional Provisions Act}

Car depreciation limit

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If you have a substituted accounting period and: • you acquire a car during your 1997-98 income year; • but during the 1996-97 financial year;

then your car depreciation limit is worked out under section 57AF of the existing law. {Schedule 6, Part 1: sections 42-70 and 80, pending Transitional Provisions Act]

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The new law will adjust the termination value of a car (for balancing adjustment purposes) if the car depreciation limit applies. A transitional provision will modify that adjustment if you first used the car before 1 July 1997. [Schedule 6, Part I: section 42-215, pending Transitional Provisions Act/

Associate

E

The existing law extends the meaning of associate for depreciation so that it includes reconstituted partnerships, see subsection 54AA(7) of the 1936 Act. This extension will be preserved in the new law. [Schedule 6, Part I: section 42-415, pending Transitional Provisions Act/

Consequential amendments The consequential amendments, made by Parts 2, 3 and 4 of Schedule 6, apply to assessments for the 1997-98 and later income years. [clause 4 Tax Law

Improvement Bill/ This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the depreciation provisions.

Amendments to the pending Income Tax Assessment Act 1996

Part 2 of Schedule 6 to the Bill will amend the pending 1996 Act to take account of the rewritten depreciation provisions by:

• updating depreciation references in that Act; • amending Common rules; • inserting additional definitions in the Dictionary; and • ensuring that those definitions are adopted by provisions already in the

pending 1996 Act.

Updated references

Sections 10-5 and 12-5 of the pending 1996 Act contain lists of all income and deduction provisions in both the existing and rewritten laws. Those references will be updated so that they now refer to the rewritten depreciation provisions. [Schedule 6, Part 2: items 3 to 5/

Divisions 40 and 41 contain tables giving information on the operation of the various capital allowances. The references to depreciation in those tables have been updated so they are now references to the rewritten depreciation provisions. [Schedule 6, Part 2: items 13 to 18/

References in Division 165 (company losses) and Division330 (mining) will also be updated so they now refer to the rewritten depreciation provisions. [Schedule 6, Part 2: items 37,45 and 46/

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Common rules

Common rule 1, dealing with roll-over relief for related entities, is contained in Division 41 of the pending 1996 Act. Common rule 1 will be amended so that it can also apply to the rewritten depreciation provisions. The depreciation events that give rise to roll-over relief have been added to the rule and have been tagged roll-over events. {Schedule 6, Part 2: Items 19 to 32/

Also, the record-keeping provisions in the existing law that relate to roll-over relief have been added to this Common rule. {Schedule 6, Part 2: Item 33/

As a result of these changes to Common rule 1, consequential amendments have been made to the mining provisions which also adopt the rule. {Schedule 6, Part 2: Items 40 to 44/

Common rule 2, dealing with non-arm's length transactions, will be amended to make it clear that it only applies to those capital allowances that specifically adopt it. {Schedule 6, Part 2: Items 34 to 36/


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Part 2 of Schedule 6 to the Bill will insert into the Dictionary (section 995-1 of the pending 1996 Act) new definitions of terms used in the rewritten provisions in Division 42 in Schedule 1.


abnormal income {Schedule 6, Part 2: Item 51/

closing balance {Schedule 6, Part 2: hem 56/

effective life {Schedule 6, Part 2: Item 59/

notional income {Schedule 6, Part 2: Item 63/

opening balance {Schedule 6, Part 2: Item 65/

pool {Schedule 6, Part 2: Item 67/

Definitions that have changed from the existing law, and new defined terms, that Part 2 of Schedule 6 to the Bill Will insert into the Dictionary are explained below.

New Definition: Artwork. (Schedule 6, Part 2: Item 52/

Commentary: This is the new label for the term eligible artwork which is defined in subsection 55(9) of the 1936 Act. The concept is unchanged.

New Definition: Associated government entity. (Schedule 6, Part 2: hem 53/

Commentary: This is the new label for the concepts contained in subsection 54AA(6) of the 1936 Act. The concepts are unchanged. New Def'mition: Balancing adjustment event. {Schedule 6, Part 2: Item 54/

Commentary: This new term describes all of the circumstances which give rise to the requirement to make a balancing adjustment calculation.

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New Definition: Car depreciation limit. {Schedule 6, Part 2: item 551

Commentary: The car depreciation limit is a ceiling on the cost of cars for calculating depreciation. In the existing law, this ceiling is called the motor vehicle depreciation limit. In the new law, it will be called the car depreciation limit to complement the standardisation of those terms proposed by the pending 1996 Act.

New Definition: Cost. {Schedule 5, Part 2: item 261

Commentary: All of the provisions which affect the cost of plant for depreciation will be brought together in the table in section 42-65. Changes are discussed in Part B of this chapter.

New Definition: Diminishing value method (Schedule 6,Part 2: item 571

. Commentary: This new term applies a label to the method of calculating a depreciation deduction contained in paragraph 56(1)(a) of the 1936 Act.

New Definition: Diminishing value rate. {Schedule 6, Part 2: item 581

Commentary: This new term describes the rates which are Used under the diminishing value method. In the existing law, they are referred to as annual depreciation percentages.

New Definition: Hire purchase agreement. {Schedule 6, Part 2: item 601

Commentary: The depreciation deduction has been extended to cover persons who hold plant under a hire purchase agreement.

Hire purchase is currently defined in the 1936 Act, in sections 51AD, 82AQ and 674, to mean a hire with a right to purchase. While the definitions vary slightly, all include a proviso that the final payment is referable to the instalments. .

The definition in the new law encapsulates the definitions in the 1936 Act and also brings within its ambit a purchase by instalments where title in the property does not pass until the final payment is made .. The various State hire purchase Acts also define a hire purchase agreement to include a purchase by instalments.

There is currently a body of established practice regarding what the Commissioner considers will be an acceptable lease for tax purposes. Legislating for hire purchase is not intended to affect that practice.

New Definition: Installed ready for use. {Schedule 6, Part 2: item 611

. • Commentary: This new term will mean installed ready for use and held in

... . reserve and will save repeating this lengthy expression many times in the rewritten provisions. Plant that is installed ready for use can attract depreciation deductions.·

New Definition: Notional depreciation amount. {Schedule 6, Part 2: item 62}

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Commentary: Your written down value is reduced by this amount for the purpose of calculating a balancing adjustment for certain cars. It refers to the amount that could have been deducted for depreciation of the car had you not been using the cents per kilometre or 12% of original value method for calculating your car expenses. This concept is contained in the existing law but is not labelled.

New Definition: Notional written down value. {Schedule 6, Part 2: item 64/

Commentary: This is what you have left after reducing your written down value by the notional depreciation amount. This amount is then compared with your termination value for the purpose of calculating balancing adjustments for some cars. In the existing law, this concept is referred to as the notional amount. The new law changes the label but not the concept.

New Definition: Plant. (Schedule 6, Part 2: item 66/

Commentary: . Plant is defined in the pending 1996 Act to mean plant or articles within the meaning of section 54. This definition will be repealed and replaced with a definition that is very similar to section 54. There will be 2 changes:

• plant will now include 'articles' to save repeating the cumbersome expression plant or articles many times; and

• 'implements' and 'utensils' will be replaced by the expression 'tools'.

The inclusion of articles within the definition of plant is not intended in any way to limit the interpretation of the word articles.

As a result of replacing the pending 1996 Act definition, the reference to plant in paragraph 330-95(1)(a) (expenditure that is not allowable capital expenditure for mining) has been updated to include a reference to plant within the meaning of Division 42. {Schedule 6, Part 2: item 39/

New Definition: Prime cost method (Schedule 6, Part 2: item 68/

Commentary: This new term applies a label to the straight line method of calculating a depreciation deduction contained in paragraph 56(1 )(b) of the 1936 Act.

New Definition: Prime cost rate. {Schedule 6, Part 2: item 69/

Commentary: This new term describes the rates which are used under the prime cost method. In the existing law, the rates are expressed as diminishing value percentages. If the prime cost method is used, a conversion is required. In the new law that conversion has been done and the prime cost rates have been inserted beside their diminishing value equivalent.

New Definition: Quasi-owner. {Schedule 6, Part 2: item 70/

Commentary: This new term will describe persons who may be entitled to depreciate plant even though they do not actually own it. It has been used to avoid the device of deeming those persons to be owners.

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There will be 2 categories of quasi-owner: • persons who hold plant under a hire purchase agreement; and • persons who hold certain rights over the land to which the plant is

attached.

A specific rule in the definition makes it clear that the introduction of the term quasi-owner and the inclusion of these 2 categories within the definition in no way affects the meaning of owner. {subsection 42-310(4)J

The fact that the new law deals specifically with hire purchase for the first time is the reason that the rules dealing with hire purchase will apply only to agreements entered into after the commencement of the hirer's 1997-98 income year. {section 42-15, pending Transitional Provisions Act/

Persons who hold rights over land on which plant is attached are referred to in the existing law as Crown lessees.

New Definition: Roll-over event. {Schedule 6, Part 2: item 71/

Commentary: This new term will describe the events which will attract the roll-over relief contained in Common rule 1 in Division 41. Roll-over relief will apply if:

• there is a disposal that attracts one of the listed forms of CGT roll-over relief; or

• the parties make ajoint election for it under the partial change of ownership rules.

Roll-over relief removes the requirement to make a balancing adjustment calculation.

New Definition: Termination value. {Schedule 6, Part 2: item 72/

Commentary: The existing law equivalent of this term is consideration receivable. It is the value of plant at the time ofa balancing adjustment event and is the basis ofthe balancing adjustment calculation. All termination values will be brought together in a table in section 42-205. Changes are discussed in Part B of this chapter.

New Definition: Undeducted cost. {Schedule 6, Part 2: item 73/

Commentary: The existing law equivalent of this term is the concept of notional depreciated value. Undeducted cost is the amount you have left to deduct. It is your cost less the sum of:

• any amounts you have deducted; • any amounts you cannot deduct because you used the plant otherwise

than to produce assessable income; and • any amounts you cannot deduct because another provision of the Act

denied you a deduction (eg. plant used for leisure facilities). This means that taxpayers must notionally write down their plant during any period it is used for a purpose other than producing assessable income.

New Definition: Written down value. {Schedule 6, Part 2: item 74/

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Commentary: The existing law equivalent of this term is the concept of actual depreciated value. It will mean your cost less any amounts you have deducted for depreciation. It is relevant to calculating balancing adjustments.

New Dictionary terms adopted by the pending 1996 Act

The new Dictionary definitions inserted as a result of the depreciation rewrite will also be adopted by any provisions of the pending 1996 Act that also use those terms.

References in Division 28 (car expenses) to the disposal, loss or destruction of a car will become references to the definition of balancing adjustment event inserted by this Act. {Schedule 6, Part 2: items 7 and 11}

The reference in Division 28 (car expenses) to the motor vehicle depreciation limit will become a reference to the definition of car depreciation limit inserted by this Act. {Schedule 6, Part 2: items 9 to 1O}

References in Divisions 28 (car expenses) and 900 (substantiation) to a hire purchase agreement will become references to the definition of hire purchase agreement inserted by this Act. {Schedule 6, Part 2: items 6, 8, 12, 47, 49 and 50}

References in Divisions 330 (mining) and 900 (substantiation) to installed ready for use and held in reserve will become references to the definition of installed ready for use inserted by this Act. {Schedule 6, Part 2: items 39 and 48}

Amendments to the Income Tax Assessment Act 1936

Part 3 of Schedule 6 to the Bill will amend the 1936 Act to: • close off the application of the provisions of the 1936 Act that have been

rewritten in Division 42 in Schedule 1; and • insert references to those rewritten provisions where the 1936 Act

currently refers to the existing provisions.

Closing off the old depreciation provisions

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Part 3 of Schedule 6 will insert a provision into the 1936 Act that will close off the application of existing provisions that have been rewritten or are redundant. {Schedule 6, Part 3: item 76}

Because taxpayers will be required to depreciate plant using the rewritten law from the 1997-98 income year, the existing depreciation provisions will only apply to the 1996-97 and earlier income years.

There will be one exception. The old depreciation provisions will have continuing effect for 'Australian trading ships' because the provisions dealing with those ships have not been rewritten due to their limited ongoing application (they will only apply to ships that are delivered before 1 July 1997).

Also, the provisions in the existing law about the giving of roll-over relief notices will cease to apply because they have been rewritten as part of Common rule 1. {Schedule 6, Part 3: item 130}



Part 3 of Schedule 6 will insert, in the 1936 Act, references to the rewritten provisions contained in Division 42 where the 1936 Act currently refers to the existing provisions. Amendments will only be made to provisions of the 1936 Act that have not been rewritten and closed off. There are two categories of amendment as discussed below.

The first category will add a reference to a rewritten provision, so that both existing and rewritten provisions are referred to, in a section of the 1936 Act that currently only refers to the existing provisions. This will occur where the section of the 1936 Act that contains the reference:

• applies to the continuing aspect of the existing provisions (to do with Australian trading ships); and/or

• applies to amounts deducted for depreciation for income years occurring both before and after the commencement of the rewritten provisions. [Schedule 6, Part 3: items 75, 79 to 81,90 to 106,108 to 112,126,128 to 129, 131 to 134, 138 to 139/

In all other cases, the amendment will omit the reference to the existing provision in a section of the 1936 Act and replace it with the rewritten provision. [Schedule 6, Part 3: items 77 to 78,82 to 89, 107, 113 to 125,127,135 to 137/


Part 4 of Schedule 6 to the Bill will add references to the rewritten depreciation provisions in the following Commonwealth Acts:

Commonwealth Act

Bounty and Capitalisation Grants (Textile Yarns) Act 1981

Income Tax Rates Act 1986

Sales Tax Assessment Act 1992

Social Security Act 1991

Student and Youth Assistance Act 1973

Veterans' Entitlements Act 1986

Amended by

Schedule 6, Part 4: item 140

Schedule 6, Part 4: items 141 to 144





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Exempt Income

This chapter summarises the rewritten exempt income provisions. This Bill will not make any changes to the legal effect of those provisions.

These provisions are contained in Divisions 50 to 53 and 55 in Schedule I to the Tax Law Improvement Bill 1996.


Exempt Income


This chapter covers: I • the rewritten provisions in Divisions 50 to 53 and 55 in Schedule 1 (Exempt

Income) to the Tax Law Improvement Bill 1996. These provisions will be in Divisions 50 to 53 and 55 of the pending 1996 Act; and

• the transitional provisions and consequential amendments for those I rewritten provisions contained in Schedule 3 to the Bill.

Divisions 50 to 53 and 55 in Schedule 1 contain the rewritten provisions of the 1936 Act that:

• identify amounts of income that are exempt from income tax; or • identify those entities that are exempt from paying income tax.

The corresponding provisions of the 1936 Act are mainly contained in:

• section 23 (types of exempt income and exempt entities); and • Division 1 AA (exempt pensions, benefits and similar payments).

Part A of this chapter summarises Divisions 50 to 53 and 55 of the 1996 Act. They are in Schedule 1 to the Bill.

Part B explains that this Bill will not make any changes to the legal effect of the exempt income rules.


Part D explains the transitional provisions that set out how and when the new Divisions will apply. They are in Part 1 of Schedule 3 to the Bill.

Part E explains the amendments that need to be made to the pending 1996 Act, the 1936 Act and other Commonwealth legislation, as a consequence of rewriting the provisions of the 1936 Act. These consequential amendments are in Parts 2 to 4 of Schedule 3 to the Bill.


Background

There are several important consequences of an amount being exempt income:

• it is not assessable income and is, therefore, tax free; it may reduce the deduction allowable for a tax loss;

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a loss or outgoing incurred in deriving the exempt income is not allowable as a general deduction;

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Exempt Income

the disposal of an asset used only to produce exempt income does not produce a capital gain or loss;

• the disposal of an asset owned by an entity whose total income is exempt from income tax does not produce a capital gain or loss; and

• exempt income is taken into account in working out the income tax payable on income from an approved overseas project, or on income earned in overseas employment.

Not every consequence applies to every amount of exempt income. For example, most fringe benefits are exempt income but do not reduce a deduction for a tax loss.

Guide to Division SO: What this Division is about


section 50-5

section 50-10

section 50-15

section 50-20

section 50-25

section 50-30

section 50-35

section 50-40

section 50-45

Some entities must satisfy special conditions

Societies, clubs and associations

Funds

It will exempt from income tax the income of entities that are listed in the Division in these areas:

Charity, education, science and religion

Community service

Employers and employees

Finance

Government

Health

Mining

Primary and secondary resources, and tourism

. Sports, culture, film and recreation.

Broadly, these are:

Must not be carried on for the profit or gain of members.

Must be applied for their established purpose.

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Exempt Income



section 51-5

section 51-10

section 51-15

section 51-20

section 51-25

Some amounts must satisfy special conditions

Allowances of a Reserve Force member

Educational assistance to a student

Mining payment to an Aboriginal or distributing body

Maintenance payment

It will exempt from income tax certain income of entities that are listed in the Division in these areas:

Defence

Education and training

Vice-regal representatives

Mining

Welfare.

Broadly, these are:

Must not be for continuous full time service.

Educational assistance is not paid by the Commonwealth, or by a person on the condition of rendering services.

The mining payment was made to or on the behalf of one or more Aboriginals.

The maintenance payment must be made to the spouse or child of the person making the payment.



Subdivision 52A

Subdivisions 52B & 52C

It will exempt from income tax certain pensions, benefits and allowances:

Various social security payments

Various veterans' affairs payments

Subdivision 52D Youth training allowance.

Special circumstances Broadly, these are: that determine whether the payment is wholly or partly exempt

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Ordinary payment

Bereavement payment

Supplementary amount

Exempt Income

If the recipient is under pension age, the payment is wholly exempt.

If the recipient is pension age or over, the payment is exempt up to the tax-free amount.

However, a youth training allowance is always only partly exempt.

If the recipient receives a non-lump sum bereavement payment, the payment is wholly exempt.

If the recipient receives a lump sum bereavement payment, the payment is exempt up to the tax-free amount.

However, a veterans' affairs bereavement payment is always wholly exempt.

Supplementary amounts are always wholly exempt.



section 53-10 table

section 53-20

Some amounts must satisfy special conditions

Drought relief payment

Wounds and disability pension

It will identify various types of exempt payments, together with any special circumstances that must be satisfied for the payment to be exempt. The exempt payments it deals with are:

Disability services payment

Domiciliary nursing care benefit

Drought relief payment

Wounds and disability pension

Payments that are similar to Australian and United Kingdom veterans' payments.

Broadly, these are:

If the payment is made other than because of a person's death, only the supplementary amount is exempt.

If the payment is made because of a person's death, the payment is wholly exempt.

If the payment is similar in nature to another exempt payment in Division 52 or 53, the payment is wholly exempt.

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Exempt Income

Payments made by the Australian or United Kingdom Governments

If the payment is similar in nature to another exempt payment in subdivision 52-B and subdivision 52-C, the amount is wholly exempt.



section 55-5

section 55-10

It will identify some payments that are not exempt from income tax even though they are similar in nature to payments that are wholly or partly exempt in Divisions 50 to 53:

Occupational superannuation payments

Education entry payments.


The exempt income provisions in this Bill will not change the legal effect of the corresponding provisions in the 1936 Act.



Some provisions of the existing law are redundant and have been repealed, or have not been carried across to the new law. They are summarised in the following tables:

Repealed provision

Provision to be repealed

Subject

Subsection 24(1) Limitation on exemptions

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Reason for repealing

This rule does not change what the law would otherwise be and therefore serves no useful purpose.

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Provisions not carried across to the new law

Provision to be Subject left behind in the 1936 Act

Paragraph 23(kb) Exempt allowances and expenses paid under Parts IV and VI of the Reestablishment and Employment Act 1945

Paragraph 23(0) Exemption of gold mining income and section 23C

Section 23AAA

Section 23D

Section 23)

Exemption of certain payments to persons formerly employed in Papua New Guinea

Exemption for income from mining and treating uranium

Exemption of proceeds from sale of securities purchased at a discount


Exempt Income

Reason for omission

Parts IV and VI of the Reestablishment and Employment Act 1945 have been repealed

The exemption does not apply to income derived after 31 December 1990.

This exemption applies to payments made to former employees of Papua New Guinea whose employment ended before 31 December 1973. It is unlikely that income of this kind is still being received.

This section applies to certain income derived before I July 1968.

This provision applies to securities purchased on or before 30 June 1982. It is unlikely that income of this kind is still being received.


The rewritten provisions will apply to assessments for the 1997-98 income year and later income years./Schedule 3, Part 1, item 2}

Part 1 of Schedule 3 will preserve the operation of an existing Income. Tax Regulation made for the purposes of a provision affected by the rewrite in Division 51 of Schedule 1. The provision is paragraph 23(t) of the 1936 Act (exempt bounties and allowances of a prescribed kind payable to a Defence Force member)./Schedule 3, Part 1, item 2)

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Exempt Income



Part 2 of Schedule 3 to the Bill will amend the pending 1996 Act to:

• update references to provisions of the pending 1996 Act that have been rewritten in Divisions 50 to 53 and 55 in Schedule 1;

• insert additional definitions in the Dictionary in section 995-1 of terms that are used in the rewritten provisions contained Divisions 50 to 53 and 55 in Schedule 1; and

• revise a definition in the pending 1996 Act.

Updated references

Sections 11-5, 11-10 and 11-15 of the pending 1996 Act contain lists of provisions of both the existing and rewritten laws that deal with particular kinds of exempt income. Part 2 of Schedule 3 to the Bill will update those references to existing provisions that have been rewritten in Divisions 50 to 53 and 55 in Schedule 1, so that the lists refer to the rewritten provisions. [Schedule 3, Part 2, items 3 to 11/


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Part 2 of Schedule 3 to the Bill will insert into the Dictionary (section 995-1 of the 1996 Act) new definitions of terms used in the rewritten provisions in Divisions 50 to 53 and 55 in Schedule 1.


Aboriginal/schedule 3, Part 2, item 17/

bereavement Subdivision [Schedule 3, Part 2, item 19/

distributing body [Schedule 3, Part 2, item 20/

exempt Australian government agency [Schedule 3, Part 2, item 21/

friendly society [Schedule 3, Part 2, item 22/

friendly society dispensary [Schedule 3, Part 2, item 23/

mining payment [Schedule 3, Part 2, item 25/

supplementary amount of a drought relief payment [Schedule 3, Part 2, item 29/

supplementary amount of a payment made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act J 986 [Schedule 3, Part 2, item 29/

supplementary amount of a social security payment [Schedule 3, Part 2, item 29/

supplementary amount of a student and youth assistance payment [Schedule 3, Part 2, item 29/

supplementary amount of a veterans' affairs payment [Schedule 3, Part 2, item 29/

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Exempt Income

tax-free amount of a social security payment [Schedule 3, Part 2, item 30[

tax-free amount of a student and youth assistance payment [Schedule 3, Part 2, item30}.

Definitions that have changed from the existing law, and new defined terms, that Part 2 of Schedule 3 to the Bill will insert into the Dictionary are explained below.

Part 2 of Schedule 3 to the Bill will insert new definitions of terms used in the rewritten provisions.

New Definition: Australian government agency. [Schedule 3, Part 2, item 18}

Commentary: Australian government agency is a new term that does not appear in the 1936 Act. It will cover the Commonwealth, States and Territories together with any authority constituted under an Australian law. It will replace the existing term government body as well as phrases in operative provisions that repeat the definition in full. This will cause no change to the law.

New Definition: Member of the Forces. [Schedule 3, Part 2, item 24}

Commentary: Member of the Forces has the meaning given by section 52-105. This is a sign post to the meaning given to member of the Forces in the Acts referred to in section 52-105 in Schedule 1.

New Definition: Ordinary payment. [Schedule 3, Part 2, item 26}

Commentary: Ordinary payment has the meaning given by sections 52-10, 52-65 and 52-150. This is a new term developed for the purpose of separating those pensions, benefits and allowances that are paid for reasons other than because of another person's death, from those that are paid because of another person's death. By separating these two types of payments the tables, used in sections 52-10, 52-65 and 52-150, can easily apply the different types of tax treatment for these payments according to whether the payment was paid because of another person's death or not.

New Definition: Pension age. [Schedule 3, Part 2, item 27}

Commentary: Pension age is defined in section 24ACC of the 1936 Act and covered in subsection 24ABB(l) of the same Act. These two provisions are sign posts to the definition of pension age as defined in the Social Security Act 1991. The new definition has combined section 24ACC and subsection 24ABB(l) of the 1936 Act so as to have a single sign post to the definition in the Social Security Act 1991.


The amendments made by Part 2 of Schedule 3 apply to assessments for the 1997 -98 income year and later income years. [clause 4, Tax Law Improvement Bill

1996} This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the exempt income provisions.

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Exempt Income


Part 3 of Schedule 3 to the Bill will amend the 1936 Act to:

• insert references to the rewritten provisions contained in Divisions 50 to 53 and 55 in Schedule 1 where the 1936 Act currently refers to the existing provisions; and

• close off the application of provisions of the 1936 Act that have been rewritten in Divisions 50 to 53 and 55 in Schedule 1 so that the existing provisions apply only to the 1996-97 income year and earlier income years.


Part 3 of Schedule 3 will insert in the 1936 Act references to the rewritten provisions contained in Divisions 50 to 53 and 55 where the 1936 Act currently refers to the existing provisions. There are two categories of these amendments.

The first category will add a reference to a rewritten provision in a section of the 1936 Act where a reference to the existing provision currently appears so that both existing and rewritten provisions are referred to./Schedule 3, Part 3, items 39, 40,60/



the 1997-98 income year or a later income year./Schedule 3, Part 3, items 37, 38,41 to 46,48 to 51, 53 to 55, 57, 58, 61/


Part 3 of Schedule 3 will insert new provisions into the 1936 Act that will close off the application of existing provisions that have been rewritten or are redundant./Schedule 3, Part 3, items 31, 34/

In these cases, the existing provisions need to be closed off so that they only apply to the 1996-97 income year and earlier income years. This complements the transitional provisions in Part 1 of Schedule 3 that ensure that the corresponding rewritten provisions apply to the 1997-98 income year and later income years.


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The amendments made by Part 3 of Schedule 3 apply generally to assessments for the 1997-98 income year and later income years. /clause 4, Tax Law

Improvement Bill 19961 This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the exempt income provisions.

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Part 4 of Schedule 3 to the Bill will amend other Acts that currently refer to existing provisions that have been rewritten and are contained in Divisions 50 to 53 and 55 in Schedule 1. {Schedule 3, Part 4J They are:

Commonwealth Act

Australian Industry Development Corporation Act 1970

Australian National Railways Commission Act 1983

Australian Postal Corporation Act 1989

A ustralian Trade Commission Act 1985

Amended by





Development Allowance Authority Act 1992 Schedule 3, Part 4: items 66 and item 67

Export Finance and Insurance Corporation Schedule 3, Part 4: item 68 Act 1991

Federal Airports Corporation Act 1986

Health Insurance Commission Act 1973

Legislative Instruments Act 1996

National Rail Corporation Agreement Act 1992

Social Security Act 1991


Schedule 3, Part 4: item70



Schedule 3, Part 4: items 73 and 74

Superannuation Guarantee (Administration) Schedule 3, Part 4: item 75 Act 1992.

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Trading Stock

This chapter explains the rewritten provisions about the income tax treatment of trading stock.

These provisions are contained in new Divisions 70 and 385 in Schedule I to the Tax Law Improvement Bill 1996.

Transitional provisions and consequential amendments are contained in Schedule 5 to the Bill.

Trading Stock



• the rewritten provisions in Divisions 70 (trading stock) and 385 (primary production) in Schedule 1 to the Tax Law Improvement Bill 1996, and

• the transitional provisions and consequential amendments required because of those rewritten provisions. They are in Schedule 5 to the Bill.

Divisions 70 and 385 replace provisions of the 1936 Act that deal with trading stock and some similar assets. The 1936 Act provisions are in sections 26B, 26BA, and 28 to 37.

Part A of this chapter summarises new Divisions 70 and 385 in Schedule 1.


Part C explains why certain provisions of the 1936 Act are not being rewritten.

Part D explains the transitional provisions in Part 1 of Schedule 5 which set out how, and from when, the rewritten provisions will apply.

Part E explains consequential amendments to be made to the 1936 Act, the pending 1996 Act and other Commonwealth legislation. These are located in Parts 2 to 4 of Schedule 5 to the Bill.


Guide to Division 70: Tax accounting for trading stock

What is trading stock?

How is trading stock accounted for?

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Trading stock is the things (eg. goods, land, intangible property) in which a business trades. Trading stock includes the raw materials and partially finished products that a manufacturer will convert into finished goods for trading. It also includes live stock./section 70-10}

A business trading in assets generally deducts the cost of acquiring trading stock and includes in assessable income the proceeds of sales made in the ordinary course of the business.

Also, the difference between the values of the stock on hand at the start and end of each year is taken into account.

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Trading Stock

Deductions for trading stock

What deductions can you get?

When are those deductions available?

What if the value is inflated?

Market value

Losses or outgoings in acquiring trading stock are general deductions under section 8-1 of the pending 1996 Act.

The law does not treat expenditure in acquiring trading stock as non-deductible capital expenditure /section 70-25J.

Expenditure in acquiring trading stock will generally be deductible in the income year you incur it. However, if the stock has not come on hand by the end of the year, the expenditure is deductible in the first year when:

• the item becomes stock on hand; or • an amount is included in assessable income due to

disposal of the item./section 70-15J

If trading stock is bought for more than its market value, it is treated as having been bought for its market value. /section 70-20J

This expression has a generally well understood meaning but has also been the object of judicial consideration.

In working out the market value, the courts will make appropriate assumptions about the market in question. These can be affected by the actual transaction under consideration. For example, the market value of a solitary item would usually be higher than the market value of such an item disposed of in the sale of the entire stock of a business.

If there is no identifiable market for a particular item, the courts have been willing to assume that there are willing buyers and sellers.

Taking into account trading stock on hand

How is stock on hand brought to account?

The difference between the value of stock on hand at the start of each year (opening stock), and the value of stock on hand at the end of the year (closing stock) is taken into account./section 70-35J

The Act does this, in effect, by assessing as income the value of closing stock and allowing a deduction for the value of opening stock.

The overall effect is that a profit on sale of stock is assessable and a loss on sale is deductible.

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Trading Stock

The value of opening stock

An item of stock is given the value it had as closing stock at the end of the preceding income year. {section 70-40/

The value of closing stock There is a choice of valuing an item at: • cost; • market selling value; or • replacement price. {section 70-45/

If an item of stock is obsolete, or if other special circumstances warrant it, any reasonable lower value can be chosen instead. {section 70-50/

Horse breeding stock has a special value option. {sections 70-60 and 7fJ..65/

There are other conditions if a closing stock item is an interest in a foreign investment fund. {section 70-70/

Natural increase of live stock

What is the 'cost' of live stock acquired by natural increase?

Change in use

What if you transfer something you already own into trading stock?

What if you take trading stock as a personal or capital asset?

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You can choose either: • the actual cost (ie. the full cost of bringing the animal

into its current state and location, including veterinary fees, pasture improvement expenses, etc.); or

• the prescribed cost set by the Regulations for different types of animal. {section 70-55/

The item is brought in as trading stock at its cost. {section 70-30/

This will require a balancing adjustment if the item was being depreciated as plant.

The law will treat you as having sold and re acquired the item at its cost. {section 70-110/ That amount will be assessable income, just like any other trading stock proceeds.

This will also be part of the item's cost base for calculation of any later capital gain or loss, or its cost for depreciation purposes.

Unusual disposals

What if you dispose of stock outside the ordinary course of business?

Special deduction for standing timber

What if there is a change in interests?

What if the owner of trading stock dies?

What happens if the stock is lost?

Trading Stock·

The disposal is treated as having occurred at market value and this amount is included in your assessable income {sections 70-90 and 70-95J. This treatment also applies to disposals of certain trees and growing crops. {section 70-85J

Normally, a deduction is allowed when you acquire trading stock. As standing timber is not trading stock, the law instead allows a deduction for its cost:

• on disposal of the land; • on the death of the owner; • when the trees are felled for sale or manufacture; or • when someone other than the owner fells the trees

under a right granted in return for a royalty. {section 70-120J

If the interests in an item of stock change (eg. a partnership takes in a new partner), then the law may treat it as being a disposal outside the ordinary course of business {section 70-100J.

This happens when there is not a complete change in interests but the item ceases to be trading stock of the original entity.' . . ...

This disposal outside the ordinary course of business would normally be treated as occurring at market value. However, if the item is an asset of the new owner's business, and all the owners agree, they can elect to roll it over for the value at which the original entity would have taken it intQ, account at the end of the year. A 25% continuity of interests is required for this election to be available, .

The owner is treated as having sold it to the legal personai representative for its market value. The representative can elect to roll it over for the value it would have had in the owner's hands at the end of the year if the business continues after the death {section 10-105J;

Insurance payments are normally assessed as ordinary' income under section 6-5. If any such payments are not ordinary income, they will be assessed on receipt {section 70-115J. .

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Trading Stock

Guide to Division 385

Deferring assessable income from live stock disposals

What special treatment is there for a forced disposal of live stock?

If the disposal is because of bovine tuberculosis

If an unusual disposal of live stock was caused by a specified event (eg. a notifiable disease; loss of pasture' due to fire, flood or drought; government resumption of land; contamination), you can elect to spread assessment of any profit over 5 years. {section 385-105}

Alternatively, the profit can be applied over the next 5 years to reduce the tax cost of replacement live stock {sections 385-110 and 385-120}. Another choice is to include in assessable income a nominated amount for animals bred as replacements {section 385-115}. Any profit not accounted for in these ways by the end of the 5 years is assessable in the last year {paragraph 385-110(J)(c)J.

The alternative choice is available over 10 years. {section 385-125}

Deferring other amounts

What is the treatment of A similar election is available for insurance for loss of live insurance recoveries?

What is the treatment for a forced early wool clip?

Election rules

What election rules are there?

Disentitling events

Who makes elections for partnerships or trusts?

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stock or loss of trees by fire - assessment can be spread over 5 years. {section 385-130}

Another election is available to defer for one year assessment of profit on disposal of a second wool clip in a year, shorn early because of fire, drought or flood. {section 385-135}

The election rules are in Subdivision 385-H. The election must be made before lodging the tax return for the year the amount is deferred (or the last of them, if more than one). {section 385-150} The election can't be made after a disentitling event happens. {section 385-160}

These include death, bankruptcy, leaving Australia permanently, or ceasing to carry on the business. {section 385-163}

An election for a partnership or trust is made by the partnership or the trustee. {section 385-145}

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What is the status of amounts deferred by eleetion?

Partnenhip transfer rUles ..

Trading Stock

They are treated as assessable income from carrying on a primary production business wheIl returned as as~ssable income.fsection 385-155}

If a partnership takes over the business of" another partnership, it can elect to be treated as a continuation of. the old partnership if there is at least a 25% continuity or' rights to income. fsection 385-165} This means that a partnership can avoid the effects of, say, a new partner being introduced.

Similarly, if an entity puts its business into a partnership with others, the partnership can adopt an election made by that entity.fsectlon 385-170}

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Trading Stock


Removing discretions

In rewriting the income tax law, many administrative discretions affecting the calculation of tax liability are being replaced with objective tests or specific criteria. This better supports the self assessment system. Discretions in antiavoidance provisions are being retained where this is necessary to protect the revenue.

Where a discretion is being replaced with more specific criteria, the change is explained in this Explanatory Memorandum. Most changes simply remove references to the Commissioner to make the law objective (eg. 'what the Commissioner considers reasonable' becomes 'what is reasonable'). This material doesn't comment further on those changes.

Section 70-20 Non-arm's length purchases

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This anti-avoidance section treats an item of trading stock as having been bought for its market value if it is bought in a non-arm's length transaction for more than its market value.

1. Change Simplifies the law by replacing the precondition that:

• either the purchase price of stock was inflated above an arm's length price or the purchase price and delivery costs were above the purchase price and delivery costs for an identical article,

with the precondition that: • expenditure on buying, or obtaining delivery of, trading stock was

greater than the market value of what the expenditure is for.

Explanation The new section's formulation focuses on whether the expenditure (either for buying or obtaining delivery of the stock) is above market value. This is simpler and easier to understand than the complicated and overlapping preconditions in the 1936 Act. It covers the same ground as the original, ie. non-arm's length transactions inflating prices above market value.

2. Change Simplifies the rules by treating the amount of expenditure on acquiring or obtaining delivery of the stock as being equal to the market value.

Explanation The 1936 Act has a complex matrix which depends on whether the Commissioner considers that only the first, only the second, or both preconditions, were satisfied. The new section replaces that matrix with just one outcome - the inflated expenditure is reduced to the market value. This maintains the policy of the original provision but simplifies its expression.

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Trading Stock

3. Change Replaces arm's length price with market value.

Explanation The rewritten law restricts the use of different terms to express the same idea. For this reason arm's length price will be replaced in the new law by market value. Market value is already used in many places in the existing law (including the trading stock provisions) and is largely synonymous with arm's length price.

Sections 70-30 & 70-110 Change in use of trading stock

These sections explain how to treat an asset that moves from being a private or capital asset to being trading stock or vice versa.

Change This change provides an explicit treatment for the transfer of assets into, or from, trading stock. It will be treated as a notional sale and immediate reacquisition of the assets at cost.

Explanation

The existing law The legislation is silent about how to treat a taxpayer who commits goods to trading stock, or takes them from trading stock but retains ownership. Also, there is little case law on the point.

A decision of the High Court, Murphy's Case (1961) 106 CLR 146, established that, if trading stock is devoted to a capital use, the eventual disposal is a disposal of trading stock outside the ordinary. course of business.

This however, leaves an asset continuing to be treated as trading stock after it is no longer held for trading (even after the business has ceased).

There is no Australian decision about taxpayers taking stock for their private use or consumption, which is easily the most common change of use. The Commissioner requires an amount to be returned as income when stock is taken for those purposes and publishes schedules of accepted amounts. These schedules are annual estimates of values of goods taken for private use by taxpayers in particular industries. Currently, these values are below both market value and cost.

The new law The thrust of the change is to ensure that changes of use will be treated in accordance with commercial reality. If an asset is held for trading, it will be treated as trading stock regardless of its original use. If an asset is no longer held for trading, it will no longer be treated as trading stock (unless it is live stock, manufacturer'S raw materials or work in progress and so within the extended meaning of 'trading stock').

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Trading Stock

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This will be achieved by treating the asset as being sold when it is converted to a new use, terminating its previous status, and taking it to be repurchased in its new status.

In consultation processes, there has been extensive debate about the value at which the sale and repurchase should occur. The Government has decided that the deemed sale and repurchase should be at cost. 'Cost' has the same meaning as in valuing trading stock on hand at the end of an income year (except that items becoming trading stock ignore the special rules for working out the cost of natural increase of live stock).

The object is to ensure that all deductions obtained by a taxpayer in relation to an item of trading stock are recovered if it ceases to be trading stock.

Sections 70-30 and 70-110 will apply to real changes in an asset's use.

Whether there is a real change of use is determined by examining the objective facts. For example, if an asset is still held primarily for trading, putting it to another minor use would not amount to a change from trading stock. Similarly, realising a capital asset would not, of itself, amount to a change of use.

If a taxpayer's dominant purpose in converting an asset to or from trading stock is to obtain a tax benefit, Part IV A (the general anti-avoidance provision) will apply and the Commissioner may cancel that benefit.

Examples

Example I: Converting trading stock to a private use

If you took trading stock for personal use, you would be treated as having sold it for its cost and that amount would be assessable (just like the sale of any trading stock). For capital gains tax purposes, you would be treated as having acquired it on that day for its cost. If you later disposed of it, there might be a capital gain or loss.

Example 2: Converting trading stock to a capital use

If you converted trading stock into depreciable plant, you would be treated as having sold it for its cost. That would be assessable income. The plant would be treated as having been purchased for the same price and depreciation would be calculated from that cost.

Example 3: Converting capital assets to trading stock

If you converted depreciated plant into trading stock, you would be treated as having sold it for its cost. This would produce a balancing adjustment because the cost would be greater than the plant's written down value. However, the cost would be deductible, as the deemed cost of trading stock.

Example 4: Converting private assets to trading stock

If you converted a private asset into trading stock, you would be treated as having sold it for its cost. The proceeds of the deemed sale would not be assessable income. However, the cost would be deductible as the cost of trading stock.

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Section 70-40 Value of opening stock

This section specifies that the value of stock on hand at the start of a year (the opening stock) is the same amount that was taken into account as the previous year's closing stock.

Change This ensures that the opening value of each item of stock is always the same as the closing value it had in the previous year. If not taken into account at the end of a year, its opening value at the start of the next year will be nil.

Explanation Section 29 of the 1936 Act says that an item's opening value is the value ascertained under the Act at the end of the previous year. There are some Board of Review decisions concluding that those words mean that the opening value must be what the previous year's closing value should have been. If the previous year's assessment cannot be amended because of time limits, its closing value will be different from the next year's opening value. This will produce either a windfall gain or an unexpected loss for the taxpayer.

The rewrite avoids the possible problem. If one year's closing value is amended, then the next year's opening value will change to reflect that amendment. If the closing value cannot be amended, the next year's opening value will still be what was recorded as the closing value. Subsection 70-40(2) supports this by ensuring that an item's opening value is nil if the item's closing value in the previous year was not taken into account at all.

Section 70-45 Value of closing stock

This section explains that a taxpayer can elect to value each item of trading stock on hand at the end of an income year (closing stock) at a choice of cost, market selling value and replacement price.

Comment The rewrite adopts the expression cost instead of cost price and replacement price instead of the price at which it can be replaced.

These are simpler terms. The ideas behind them are unchanged.

Change The rules for valuing live stock are being brought in line with those for valuing other trading stock.

Explanation The present rules for valuing live stock differ from those for valuing other trading stock in these ways:

• live stock generally can only be valued at cost price or market selling value;

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that choice must be made uniformly for all live stock; the method cannot be changed from year to year except with the Commissioner's permission;

• the Commissioner has a discretion to allow another value to be used if satisfied that there are circumstances that justify it; and

• if no choice is made, cost price applies.

The Bill will remove those differences. This will allow taxpayers greater flexibility in valuing live stock.

Special rules for working out the cost of natural increase [section 70-55}, and the present extra valuation option for horse breeding stock [sections 70-60 and

70-65}, will remain.

In accordance with self assessment principles, the alternative value that depends on the Commissioner's discretion will be replaced by an alternative value that depends on objective tests [section 70-50}. These are the same tests used for all trading stock - obsolescence or other special circumstances. Under the existing discretion, the Commissioner effectively allows stud animals to be depreciated at 20% a year so long as their market selling value is actually declining. Taxpayers will be able to achieve the same result under this proposal by valuing their animals at market selling value.

Section 70-50 Obsolescent stock and special circumstances

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This section allows the value of an iteIl). of stock to be reduced if it is obsolescent or if other special circumstances warrant.

Change

Under the present law, this reduced value is available if: • a written request is lodged with the Commissioner; • the Commissioner is satisfied that the prerequisites are met; and • the Commissioner sets a value, taking into account 3 listed factors and

any other relevant factors.

Under the rewrite, it is a matter of objective fact whether the preconditions exist. If they do, you can set a reasonable value below the standard values, without having to notify the Commissioner.

Explanation Consistent with the principles of self assessment, taxpayers will not have to approach the Commissioner to set a different value but will be able to decide if the prerequisites are satisfied and then set a reasonable value.

The listed factors are not needed because they are covered by the requirement that the taxpayer's decision be reasonable.

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Section 70-55 Cost of natural increase

This section explains how to work out the cost of an animal acquired by natural Increase.

Change The present rules about how to work out the cost price of natural increase are replaced by a simple choice between actual cost and the value prescribed in the Regulations.

Explanation The 1936 Act uses a more involved process to work out the cost price of natural increase. It depends on whether there is a prescribed value for the particular type of stock and whether the taxpayer has previously valued that stock at cost price:

Taxpayer's situation

If a va'lue is prescribed for the class oflive stock and the taxpayer has previously valued that class at cost price

If a value is prescribed for the class oflive stock but the taxpayer has not previously valued that class at cost price

How to calculate cost price

Taxpayer chooses one of:

• The greater of -(a) the cost price valuation the taxpayer used

last time; and (b) the prescribed value for the class;

• The prescribed value, or any greater amount acceptable to the Commissioner; or

• The actual cost· price, if that is less than the prescribed value.

Taxpayer chooses one of:

• The prescribed value for the class; • Any amount above the prescribed value; or • The actual cost· price, if that is less than

the prescribed value.

If there is no prescribed value for Actual cost· the class of live stock

• Actual cost means the full cost of bringing the animal into its current state and location. This wi\l include expenses like veterinary fees, fencing, feed, etc.

This section will replace that with the taxpayer's choice between actual cost and the prescribed value.

Section 70-100 Items becoming trading stock of a different entity

This section provides for what happens if a partial change of interests in trading stock causes that stock to be held by a different entity (eg. if there is a change in the membership of a partnership that has trading stock).

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Change Replaces the present rule, which:

treats any change in interests in trading stock as a disposal from the old I owners to the new owners,

with a rule that: • treats a change of interests as a disposal only if the item stops being

trading stock on hand of the owners.

Explanation I The present rule can cause taxpayers needless trouble by deeming a sale to occur even if there is no change in the taxpayers (eg. if there is a variation in partnership interests but no change in the partners themselves).

This section will only treat the stock as sold by the old owners if there is a new taxpayer.

Section 70-105 Death of an owner of plantation trees

168

This section provides for the treatment of disposals of trading stock on the owner's death. It applies the same treatment to disposals of trees planted and tended for sale and of crops on the owner's death.

1. Change If the owner of a plantation disposes of trees, the 1936 Act allows a deduction for their cost to balance the assessment of their market value (subsection 36(7A». This section extends that treatment to disposals on the owner's death as long as the deceased's representative does not elect for a nil value.

Explanation This section treats the death of the owner as causing a disposal of trees for their market value. However, the personal representative can choose to value them at the value they would have been accounted for at the end of the year if the owner had not died.

If the representative does not make the election, this section will provide the same deduction as would have been available if the owner had disposed of the trees while alive.

2. Change The election to value trading stock held at death at other than market value will be made by the legal personal representative instead of by agreement of the trustee of the estate and those beneficiaries liable to be assessed on the income of the business.

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Explanation This is part ofa change to standardise election rules in this part of the law. It

. is discussed more fully under 'subdivision 385-H and section 70-105, standardised elections', later in this chapter.

Subdivision 385-E Live stock elections and abnormal disposals

This subdivision sets out the elections available to primary producers who are forced to sell some of their live stock (eg. because of a notifiable disease or a loss of pasture to fire or flood). These elections provide concessional treatments for assessment of any profit made on the sale of that live stock.

1. Change One election available to primary producers who have to sell some of their live stock because of certain listed circumstances is to spread the assessment of any profit they make over 5 years. This Subdivision will replace the present rules about that election with a simpler set of rules.

The present rules about when primary producers can make an election and the effects of doing so are in the following table:

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Death or disposal

caused by

Within ordinary course of business?

Yes

Is election

allowed?

No

If the election is made ....

What is assessable?

N/A

What amount is spread?

N/A government [····························t···························r··············· .. ························[········· ..................................................... .

! !! ! excess over opening value/ resuming land . .. . ! No [l.· ! purchase price of either: Yes market value ! !! ! • return on disposal;

--------J-----L----I--------J---:--~~~E=~ !'7f::~;;:r, iy-"--t--~-O---I-N!~--i-;;;~;~;;;:;~;~;;~~;;-

! !: ! purchase price of either: tick eradication· No Yes market value

-------I------t-----J------J--:-~~~~j~~~ losing pasture ........... ~.~~ .......... L. ........ ~.~ ........... l ..... ············~:.~··················I··~~~~~~·~~~;::::~:~.~.~;~~; ... .

or fodder! !! ! purchase price of either: No Yes market value

diseases t··········~~···········t··········~~~··········1 r;:~;s~~ :

···········································t····························t····························~

000:':"0. !--:~ ___ I ___ ;:_I ~':'''HO'

excess over opening value/

purchase price of (return on disposal + compensation)

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Under the new Subdivision, the rules about when the election can be made and the effects of making it will be:

Within Is If the election is made .... ordinary election

Death or disposal

caused by course of allowed? business?

What is assessable?

What amount is spread?

any of the listed

causes

Yes Yes i return on disposal : excess of assessable I:. + compensation i amount over:

. .. : • opening value; or i····························:-···························[···········································1 • purchase price (if iN! Y i market value i h d d . i 0 i es i + compensation i purc ase urmg : :: : year) 1 l! ;

Explanation The present law provides for these concessions in two separate provisions (sections 36 and 36AA) which have a very similar operation but with slight differences. The Subdivision standardises the prerequisites and the effects so that the two provisions can be combined [sections 385-100 and 385-105J.

2. Change The alternative election will be available in all these cases instead of just in some of them as at present.

Explanation In most cases in which taxpayers can elect to spread the profit ona forced disposal oflive stock under the existing law, they can defer assessment of the whole profit for up to 5 years. If they do, the profit is effectively taxed by reducing the tax cost of replacement live stock or by including an amount in assessable income for replacement stock they breed.

This election is not currently available for a disposal made because of: • a resumption of land; or • a State leasing land under a cattle tick eradication program.

The proposal extends the election to those cases [sections 385-100 and 385-110J.

3. Change Will extend both:

• the election to spread profit on a forced disposal; and • the alternative to defer the whole of the profit for up to 5 years,

to leases ofland for cattle tick eradication programs by Territories as well as by States.

Explanation Under the present law, primary producers can make these elections if they have to sell live stock because a State leases land for a cattle tick eradication

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campaign. The law does not allow them to make the elections if a Territory leases the land for the same purpose.

4. Change I This change will remove an exception for bovine brucellosis that presently exists if a taxpayer makes the alternative election and will vary the formula for accounting for the deferred profit where an election is made in the context of bovine tuberculosis.

Explanation I An election usually requires the deferred profit to be accounted for within 5 years. However, in the case of 2 diseases - bovine brucellosis and tuberculosis - the period is 10 years. Further, the formula the law uses to reduce the cost price of replacement stock in those 2 cases is different from that for other diseases.

Australia is free of bovine brucellosis, so there is no need for it to be accorded a preferred treatment.

If a taxpayer makes the alternative election, the law provides a formula for reducing the tax cost of purchased replacement live stock. In the remaining exceptional case - bovine tuberculosis - the formula will be the same as for other diseases:

tuberculosis formula now

unused profit on the disposal

no. of animals in purchase

This will make the law simpler.

proposed

profit on disposal

no. of animals lost

Subdivision 385-H and section 70-105 Standardised elections

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Subdivision 385-H and section 70-105 set out the rules for making elections under:

• section 70-105 (death of the owner); • Subdivision 385-E (forced disposals of live stock); • Subdivision 385-F (insurance recoveries for losses oflive stock or trees);

and • Subdivision 385-G (profit on the sale of a second wool clip).

1. Change Rules about who makes elections in partnership and trust cases will be standardised with a rule that these elections are always made by the partnership or the trustee [sections 70-105 and 385-145/.

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Explanation At present, there are 3 election systems for partnerships and trusts. These apply to:

• forced disposal of live stock {sections 36, 36AAA and 36AA};

• elections to spread insurance payments for losses of live stock or trees {section 26B};

• elections to spread the profit on the sale of a second wool clip forced by fire, flood or drought {section 26BA}; and

• elections to value trading stock that becomes part of a deceased estate at other than market value {section 37}.

Sometimes each partner and beneficiary can make a separate election. At other times the relevant partners must make a unanimous election. In section 36AAA, only the partnership or the trustee can elect.

Standardising these elections at the partnership and trustee level has these important advantages:

• it simplifies and greatly shortens the election provisions; • it substantially lowers compliance costs by reducing the number of

elections that need to be made; and • it overcomes confusion about which beneficiaries need to agree that the

value of trading stock under a deceased estate should be rolled over.

2. Change This change extends to Subdivisions 385-E, F and G the election - available to partnerships that take over the business of another taxpayer - to be treated as a continuation of that other taxpayer {sections 385-165 and 385-170}.

Explanation Under Section 36AAA, a partnership that takes over the business of another taxpayer can elect to be treated as a continuation of that other taxpayer if there is at least a 25% continuity of interest. This means that an election made by the other taxpayer to defer assessment of the profit on a forced disposal is treated as if it were made by the partnership.

A consequence of standardising elections is that this choice will be available for partnerships for all the various elections under Subdivisions 385-E, 385-F and 385-G.

3. Change There will be standard rules for cancelling the effect of an election on the happening of certain events {sections 385-160 and 385-163}.

Explanation On the happening of certain events (eg. death or bankruptcy), most of the relevant provisions in the 1936 Act require outstanding amounts of deferred assessable income to be assessed in the income year in which the event happens.

One case out of step is section 26BA. That section also allows the trustee of a deceased estate to make an election to defer for 1 year the profit on the sale

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of a second wool clip in the year of death, so including that amoun~ in the estate's income of the next year. A consequence of standardising the election rules is that this election could not be made after the death. The profit will be assessable in that year.



Subsection 26BA(10) allows the Commissioner to amend an assessment at any time to give effect to an election under the section. It was intended to ensure that, if the election to defer assessable income was made after the assessment for the relevant year, it would be possible to amend the assessment to give effect to the election. Now that there is a general power to amend an assessment within 4 years, the provision is unnecessary.

The rewrite will remove a redundant anti-avoidance provision, subsection 36(9), which addresses schemes designed to deem the purchase price of trading stock to be more than its real value. This is now covered by the general anti-avoidance provision, Part IV A, which was not part of the law when subsection 36(9) was enacted. Subsection 36(10), which defines a term used in subsection 36(9), has also not been rewritten.

Subsection 36AAA(19) provides that the 'last day ofa year of income' includes the last day of an assessment period of less than a full income year. This provision has not been rewritten because the same effect is achieved by the normal substituted accounting period rules in section 18 of the 1936 Act and by the rules for special assessments in section 168 of that Act.

Subsections 36AAA(25) and 36AA(1l) define the term 'official notification'. Those definitions have not been rewritten because the term's ordinary meaning covers the same ground.

Rules that are unnecessary because of standardisation

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Subsection 26BA(7), which allows the trustee of a deceased estate to elect to defer for one year the profit on the sale of a double wool clip, has not been rewritten. This change is explained in Part B of this chapter under 'subdivision 385-H and section 70-105, standardised elections'.

Sections 32 and 33, which deal with the valuation oflive stock on hand at the end of an income year, have not been rewritten because the valuation oflive

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stocl,( is being brought broadly into line with that for other trading stock. This change is explained in Part B of this chapter under section 70-45, value of closing stock'.


Part 1 of Schedule 5 of the Tax Law Improvement Bill 1996 will amend the pending Income Tax (Transitional Provisions) Act 1996 to insert the transitional provisions for the rewritten sections discussed earlier in this Chapter.

Part 1 comprises 2 items which will insert in Chapter 2 of the Income Tax (Transitional Provisions) Act 1996 new Part 2-25, Division 70 and add new Division 385 to Part 3-45. These Divisions set out how and when the rewritten sections apply.

The rewritten provisions in Divisions 70 and 385 of the pending 1996 Act will generally apply to assessments for the 1997-98 or later income years. [Schedule 5, Part 1: subsections 70-1(1) and 385-135(1) and section 385-130, Transitional Provisions Act/.

However, there are some provisions that will apply to transactions occurring on or after 1 July 1997. There are 2 categories of such provisions. The first is provisions that affect 20r more parties to a transaction. Because either of those parties may have a substituted accounting period, the transaction may be in a different income year for each of them. The second category is provisions that link with provisions in the first category.

The provisions in Schedule 1 that will apply to events on or after 1 July 1997 are:

• section 70-20 (non-arm's length purchase of trading stock); • sections 70-90 and 70-95 (disposal of trading stock outside the ordinary

course of business); • section 70-100 (partial change of ownership of trading stock); • section 70-105 (death of the owner of trading stock); and • Subdivision 385-E (spreading or deferring profit on a forced disposal of

live stock).

In many cases, it is necessary to specify in the transitional provisions how the rewritten provisions apply if certain events have happened before the 1997-98 income year of at least one of the parties involved.

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This table explains those events and how the transitional provisions apply to them:

Transitional Event that can happen before the sections 1997-98 income year

70-10

70-40

70-55

70-70

70-100

70-105

70-115

385-130

An item of trading stock can cease to be held for trading.

Value of closing stock in 1996-97.

Natural increase oflive stock born before 1997-98.

Interest in a FIF was trading stock at the start of 1991-92.

Taxpayer elects to use market value for all interests in FIFs.

Deemed disposal and purchase because of a change in ownership of trading stock.

Deemed disposal and purchase because of the death of the owner of trading stock.

Loss of insured trading stock.

Insurance or indemnity amount for a loss of trading stock is assessable.

Loss of insured live stock or trees.

Treatment

Sections 70-90 and 70-95 (disposals of trading stock outside the ordinary course of business) will apply, even though the item is no longer trading stock, if the item would have been trading stock under the 1936 Act (so that subsection 36{l) would have applied under the 1936 Act).

The 1997-98 opening stock has the value of the 1996-97 closing stock, worked out under the 1936 Act.

Their cost is worked out under section 34 of the 1936 Act.

That interest always has the value it had then unless the market value election applies.

Applies as if the election were made under the 1996 Act.

If either party is in its 1996-97 income year, an election to treat the stock as disposed of at its trading stock value, instead of its market value, would use the trading stock values under the 1936 Act.

If the entity on whom the stock devolves is in its 1996-97 income year, an election to treat the stock as disposed of at its trading stock value, instead of its market value, would use the trading stock values under the 1936 Act.

The 1996 Act applies to amounts received in the 1997-98 or a later income year.

The 1996 Act does not apply to an amount assessable in the 1996-97 or an earlier income year.

The 1996 Act applies if the insurance recovery would be assessable in the 1997-98 or a later income year.

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; .................................... ~ ............. ~ ..................................................................... -.~ ........................................ ~ ..•........................................... 385-135 Election in 1996-97 to defer

assessing the profit on the sale of an earlier than nonnal wool clip.

The 1996 Act applies if the proceeds of selling 2 wool clips would be assessable in the 1997-98 or a later income year.

Deferral elections made under the 1936 Act are treated as made under the pending 1996 Act.

There is no special transitional provision for sections 70-30 (starting to hold as trading stock an item you already own) or 70-110 (you stop holding an item as trading stock butstill own it). Although different provisions may apply to the disposal of the. item than would have been the case if those sections had not been added, subsection 160ZA(4) of the 1936 Act will ensure that the total amount that could be assessable due to those disposals will not increase.

Consequential amendments

Amendment of the pending Income Tax Assessment Act 1996

Part 2 of Schedule 5 to the Bill will amend the pending 1996 Act to: . • update references to provisions in the 1936 Act that have been rewritten in

Divisions 70 and 385 in Schedule 1; and • insert additional definitions in the Dictionary in section 995-1 of terms

that are used in the rewritten provisions.

Updated references

Section 10-5 of the 1996 Act lists all the provisions of the current law (in both the 1936 and 1996 Acts) that deal with particular kinds of assessable income. Section 12-5 lists all the provisions that deal with particular types of deduction. Part 2 of Schedule 5 to the Bill will update references to existing provisions that have been rewritten in Divisions 70 and 385 in Schedule 1, so that those lists refer to the rewritten provisions {Schedule 5, Part 2: items 3 to 12, 15 to 19}.

Part 2 of Schedule 5 will also add further references to timber to those lists to accommodate changes to the law {Schedule 5, Part 2: items 13, 14, 20} .

. Part 2 of Schedule 5 will update other references to 1936 Act provisions rewritten in Divisions 70 and 385. Two of these will add a reference to a rewritten provision where a reference to the 1936 Act provision currently appears {Schedule 5, Part 2: items 21, 22}.

References to both existing and rewritten provisions are needed where the provision of the 1936 Act has some continuing operation.

A ref~ence to a provision of the' 1936 Act is being replaced with a reference to the rewritten provision {Schedule 5, Part 2: item 23}.

Trading Stock


Part 2 of Schedule 5 to the Bill will include in the Dictionary (section 995-1 of the pending 1996 Act) new definitions of terms used in Divisions 70 and 385.

In some cases terms used and their meaning have not changed. The following definitions fall into this category:

FIF {Schedule 5, Part 2: item 29/;

Foreign investment fund {Schedule 5, Part 2: item 30/;

Live stock {Schedule 5, Part 2: item 33/; and Notional accounting period {Schedule 5, Part 2: item 34/.

Definitions that have changed and new defined terms that Part 2 of Schedule 5 will add to the Dictionary are explained below:

New Definition: Consideration receivable. {Schedule 5, Part 2: item 25/

Commentary: In the context of trading stock changing hands, the meaning is the same as the existing law.

The meaning to do with disposalsofleased cars is changed slightly. This is discussed under 'section 20-115, working out the profit on the disposal' in Part B of Chapter 4 of this Explanatory Memorandum.

New Definition: Cost. {Schedule 5, Part 2: item 26/.

Commentary: For trading stock, this term has the same meaning as cost price in the existing law except for a difference relating to natural increase of live stock (see discussion under 'section 70-55, cost of natural increase' in Part B of this chapter).

The meaning of cost for depreciation purposes is discussed under 'subdivision 42-B, cost of plant' and 'section 42-65, how to work out your cost' in Part B of Chapter 8 of this Explanatory Memorandum.

New Definition: Disentitling event. {Schedule 5, Part 2: item 27/.

Commentary: This expression covers the existing events (eg. bankruptcy) that bring an end to the period for which some provisions defer assessable amounts.

New Definition: Disposal year. {Schedule 5, Part 2: item 28/.

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replaces the existing terms 'the year to which the election relates', 'the year of income in which the live stock were disposed of and 'the year of income in which the live stock died or was destroyed or disposed of.

New Definition: Horse opening value . {Schedule 5, Part 2: item 31}.

Commentary: A new label replacing the existing term 'opening value' in the trading stock valuation rules for horses.

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New Definition: Horse reduction amount. [Schedule 5, Part 2: item 32/.

Commentary: A new label replacing the existing term 'reduction amount' in the trading stock valuation rules for horses.

New Definition: Primary production business. [Schedule 5, Part 2: item 35/

Commentary: A new term that will replace the existing definition of primary production.

The concept of a business has been added to the definition because, in all the rewritten parts of the 1936 Act, primary production is only used in the wider concept 'business of primary production'.

Other than that addition, there is no difference in meaning between the existing definition of primary production and the new definition of primary production business.

However, there have been some changes in structure and wording to bring the definition up to date and to make it more user friendly:

Defined terms within the definition have been removed

The defined terms fishing operations (incorporatingpearling operations), forest operations and horticulture have been removed from the definition These concepts will be fully incorporated into the definition:

• fishing operations is covered by paragraph (d);

• pearling operations is covered by paragraphs (d) and (e);

• forest operations is covered by paragraphs (f), (g) and (h); and

• horticulture is covered by paragraph (a).

The defined term horticulture has been removed to make it possible to combine, in paragraph (a), the existing paragraphs dealing with the similar concepts, 'cultivation ofland' and 'horticulture'.

The other defined terms have been removed because they will not be used in the new law.

The language has been simplified

'Crustaceans and aquatic molluscs' in paragraph (d) of the definition replaces 'crustacean or oysters or other shellfish'. 'Shellfish' is an outdated term, which broadly refers to aquatic cru~taceans and molluscs.

'Aquatic molluscs' also covers the existing expressions 'trochus' and 'green snails' .

Unnecessary parts ofthe definition have been removed

The existing reference to 'poultry' is now covered by 'animals' in paragraph (b) of the definition.

The present exclusion of 'whaling' does not appear in the definition. This does not change the law, however, because whales are not 'fish, turtles,

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dugong, beche-de-mer, crustaceans or aquatic molluscs'. Therefore, there is nothing in the inclusive part of the definition that could make whaling a primary production business.

New Definition: Proceeds of the disposal or death. {Schedule 5, Part 2: item 36/.

Commentary: A label for a combined definition of the following terms from the 1936 Act: 'proceeds of the sale of the live stock', 'proceeds of the disposal of the live stock' and 'proceeds of the death of the live stock'. There are some minor changes in coverage (see discussion under 'subdivision 385-E, live stock elections and abnormal disposals' in Part B of this Chapter).

New Definition: Proceeds of the sale of 2 wool clips. {Schedule 5, Part 2: item 37/.

Commentary: A new term for an undefined idea already in the 1936 Act.

New Definition: Reduction amount. {Schedule 5, Part 2: item 38/.

Commentary: A new label for the existing term 'the amount applicable in relation to the animal' used in the trading stock valuation rules for horses.

New Definition: Tax profit on the disposal or death. {Schedule 5, Part 2: item 39/.

Commentary: A new label used in the provisions allowing primary producers to defer the assessment of profits on forced disposals or deaths of live stock. It replaces these terms in the 1936 Act: 'profit on the disposal of the live stock', 'profit on the death of the live stock', 'profit arising in respect of the death of the live stock' and 'profit arising in respect of the disposal of the live stock'.

New Definition: Trading stock. {Schedule 5, Part 2: item 40/.

Commentary: A term from the 1936 Act. One minor change was required because of the proposal about changes in use of trading stock (discussed under 'sections 70-30 & 70-110, changes in use of trading stock' in Part B of this Chapter).

Currently, trading stock includes anything 'produced, manufactured, acquired or purchased' for purposes of manufacture or trade. Under proposed section 70-110, if you stop holding an item as trading stock, it is treated as disposed of and immediately repurchased. After the repurchase, it is not trading stock regardless of the purpose for which it was originally acquired.

Therefore, the definition has been changed to depend on the purpose for which the item is held, rather than the purpose for which it was originally acquired.

The definition also uses the single word 'acquired' instead of 'acquired or purchased' on the basis that it covers the same ground as the longer expression.

New Definition: Unused tax profit on the disposal or death. {Schedule 5, Part 2: item 41/.

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Commentary: A new label for 'reduced profit on the disposal or death of the live stock'.

New Definition: Value (of an item of trading stock). [Schedule 5, Part 2: item 42[.

Commentary: A label for an undefined idea already in the 1936 Act.


The consequential amendments made by Part 2 of Schedule 5 generally apply to assessments for the 1997-98 and later income years [clause 4, Tax Law Improvement

Bill 1996/. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to trading stock.

The application of the amendment which replaces the reference to 'section 26BA' in subsection 165-60(4) with a reference to 'section 385-135' [Schedule 5,

Part 2: item 23/ does not apply until assessments for the 1998-99 and later income years [Schedule 5, Part 2: item 24/. This is because subsection 165-60(4) refers to an amount being included in assessable income by section 26BA. Section 26BA will still do that in 1997-98. Section 385-135 will only begin including amounts in assessable income in 1998-99.

Amendment of the Income Tax Assessment Act 1936

Part 3 of Schedule 5 to the Bill will amend the 1936 Act to: • insert references to the provisions rewritten by Divisions 70 and 385 in

Schedule 1 where the 1936 Act currently refers to the existing provisions; • close off the application of provisions of the 1936 Act that have been

rewritten in those Divisions, so that the existing provisions generally apply only to the 1996-97 and earlier income years;

• replace the 1936 Act definition of 'trading stock' with the 1996 Act definition; and

• modify the application of the capital gains provisions to disposals of trading stock.


Part 3 of Schedule 5 will insert in the 1936 Act references to the rewritten provisions contained in Divisions 70 and 385 where the 1936 Act currently refers to the existing provisions. There are two categories of these amendments as discussed below.

The first will add a reference to a rewritten provision where a reference to the equivalent 1936 Act provision currently appears [Schedule 5, Part 3: items 72 to 74, 77 to 79, 82, 88, 89, 92/.

A similar reference to rewritten provisions in Divisions 70 and 385 is being made by Schedule 9 to the Bill [Schedule 9, Part 3: item 15/.

181

Trading Stock

Dual references to existing and rewritten provisions are required where the provisions being consequentially amended.

• have not yet been rewritten and closed off; and • can apply to amounts relating to more than one income year (including an

income year before the 1997-98 income year).

The second category will replace reference to an existing provision in a section of the 1936 Act with a reference to the rewritten provision [Schedule 5, Part 3: items 44,63,69, 70, 75, 76,80,83,90,91,93,94/.

This is necessary where the section of the 1936 Act: • has not yet been rewritten and closed off; and • can apply to amounts that relate to only one income year at a time, being

the 1997-98 or a later income year.


Part 3 of Schedule 5 will insert new provisions into the 1936 Act that will close off the application of existing provisions that have been rewritten or are redundant [Schedule 5, Part 3: items 45 to 62, 65/.

Part 3 of Schedule 2 will also close off the application of an existing provision rewritten in Division 70 [Schedule 2, Part 3: item 20/.

In these cases, the existing provisions need to be closed off so that they only apply to the 1996-97 and earlier income years. In some cases, they are closed off so that they only apply to transactions occurring on 30 June 1997 or earlier. This complements the transitional provisions in Part 1 of Schedule 5, which ensure that the corresponding rewritten provisions apply to the 1997-98 and later income years or to transactions occurring on 1 July 1997 or later.

Part 3 of Schedule 2 will also make some further minor changes to the 1936 Act to reflect changes made by closing off other provisions [Schedule 5, Part 3, items: 66, 67, 68, 71/.

Change of use of trading stock

182

Several consequential amendments to the 1936 Act are needed to complement the new rules dealing with trading stock that changes use (see discussion under 'sections 70-30 & 70-110, change in use of trading stock' in Part B of this chapter).

Part 3 of Schedule 5 will amend Part IIIA of the 1936 Act. The first of those amendments will vary paragraphs 160L(3)(a), (4)(a) and (5)(a). These stop Part IIIA applying to a disposal of an item that was trading stock throughout the period it was owned by the taxpayer. The amended paragraphs will simply prevent the capital gains provisions applying to an item that is trading stock when disposed of [Schedule 5, Part 3: items 84, 85/.

Secondly, it will add a new provision (subsection 160ZB(7» that will ensure that the notional disposal under section 70-30 when an item is converted into trading stock, will result in neither a capital gain nor a capital loss [Schedule 5, Part 3: item 86/.

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Trading Stock

Part 3 of Schedule 5 will also preclude the operation of 3 provisions in the 1936 Act that would otherwise be triggered by disposing of an item for no consideration or for less than its market value [subsection 47A(lO), and paragraphs

103A(3A)(c) and 160ZD(2)(a), of the 1936 Act/. Because the change of use rules treat an item as having been sold for cost (which could be less than market value, or nil for items that were gifted or inherited), such provisions will be amended to prevent them applying to the notional disposals. [Schedule 5, Part 3: items 64, 81, 87/.

Miscellaneous

Part 3 of Schedule 5 will replace the definition of 'trading stock' in the 1936 Act with a definition adopting the definition in the 1996 Act [Schedule 5, Part 3: item 43/.


The consequential amendments made by Part 3 of Schedule 5 generally apply to assessments for the 1997-98 and later income years [Clause 4, Tax Law

Improvement Bill 1996/. This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to trading stock.

Amendment of other Commonwealth legislation

Part 4 of Schedule 5 to the Bill will add references to rewritten provisions contained in Division 70 in Schedule 1, to these Commonwealth Acts:

Commonwealth Act Amended by

Cattle Transaction Levy Act 1995 Schedule 5, Part 4: item 95

Financial Corporations (Transfer of Assets Schedule 5, Part 4: items 96 to 99 and Liabilities) Act 1993


The consequential amendment made to the Cattle Transaction Levy Act 1995 by Part 4 of Schedule 5 applies to assessments for the 1997-98 and later income years [clause 4, Tax Law Improvement Bill 1996/.

The consequential amendments made to the Financial Corporations (Transftr of Assets and Liabilities) Act 1993 by Part 4 of Schedule 5 apply to the 1997-98 and later years of income [Schedule 5, Part 4: item 100/.

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I Capital allowances for primary producers and some land-holders .

This part explains the rewritten capital allowances that are available to primary producers and some land-holders who use land for business purposes.

These provisions are contained in Division 387 in Schedule 1 to the Tax Law Improvement Bill 1996.


Capital allowances for primary producers and some land-holders


This chapter covers

• the rewritten provisions in Division 387 in Schedule 1 to the Tax Law Improvement Bill 1996; and

• the transitional provisions and consequential amendments for those provisions in Schedule 11.

Division 387 restates provisions of the 1936 Act that allow deductions for particular capital expenditures incurred by primary producers and some landholders.

Part A summarises Division 387.

Part B explains proposed changes to the content of the current provisions.



Part E explains the amendments that need to be made to the pending 1996 Act and the 1936 Act as a consequence of the rewriting of the 1936 Act. These provisions are located in Parts 2 and 3 of Schedule 11.


Guide to Division 387: Capital allowances for primary producers and some land-holders


186

Division 387 allows deductions for capital expenditure on landcare operations, water conservation or conveyance, establishment of grapevines, mains electricity supply, telephone lines and forestry roads and timber mill buildings by taxpayers who use land in primary production and some other types ofbusinesses./section 387-1/

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Landcare operations {Subdivision 387-AJ

What the subdivision will do

The general rule

Exception

When is the deduction available?

What is a '/andcare operation '?

What is an approved management plan for land?

Subdivision 387-A, which applies to primary production businesses and businesses that derive income from rural land, will allow a deduction for capital expenditure on landcare operations. [section 387-50}

Capital expenditure incurred in a landcare operation on Australian land is deductible if the land is used:

• in a primary production business; or • in a business carried on to produce assessable

income from rural land. [subsection 387-55(I)J

This does not include mining or quarrying. [paragraph 387-55(J)(b)J

In the year in which you incur the expenditure. [subsection 387-55(2)J

The following are landcare operations: • fencing to separate different land classes under an

approved management plan; • fencing to exclude livestock or vermin from

degraded areas, to limit the degradation, and to help reclaim them;

• constructing a levee, or similar improvement; • constructing drainage works; • operations for eradicating, exterminating, or

destroying animal pests, or destroying plant or weed growth; and

• operations for preventing or fighting land degradation. [section 387-60}

A plan that shows: • the land classes; • the location of fences necessary to separate land

classes to prevent land degradation; and • the kind of fencing and how it would prevent land

degradation.

It need not relate to the whole of the land used for business purposes.

The plan must have been prepared or approved by an authorised officer of a State or Territory government department or authority responsible for land conservation; or by an approved farm consultant. [sections 387-80, 387-85, 387-90}

187


Limit on deductions for plant

Changed use of land

Plant deductible under this Subdivision is: • a fence covered by the definition of landcare

operation; or • specified dams and structural improvements.

/subsection 387-65(l)J

A deduction may be reduced if, during the income year in which you incur the capital expenditure, the land is used other than in the relevant business. /section 387-70/

Partnerships and partners If a partnership incurs expenditure on a landcare operation, partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. /section 387-75/

Common rules Common rules are rules that apply to more than one kind of capital allowance. They are contained in Division 41 of the pending Income Tax Assessment Act 1996. Common rule 2, as modified, will apply to landcare. /subsection 387-65(2)J

Recoupments Recoupment of deductible expenditure is generally treated as assessable income of the income year in which the recoupment is received. /Subdivision 20-A/

Facilities to conserve or convey water {Subdivision 387-B}


The general rule


Subdivision 387-B, will allow a deduction for facilities to conserve or convey water. /section 387-1201

You can deduct capital expenditure on a water facility that is primarily and principally for conserving or conveying water for use in a primary production business in Australia./section 387-125(l)J

The deduction is spread over 3 years./subsection 387-125(2)J

What is a 'water facility'? A water facility is plant or a structural improvement for conserving or conveying water. /section 387-130J

Partial business use

188

You deduct a reasonable proportion if the water facility is not wholly for use in a business of primary production or for producing assessable income. /section 387-135/

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Partnerships and partners Partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. {section 387-150J

Common rules Common rule 2, as modified, will apply. {section 387-145J

Recoupments The recoupment provisions will apply. {Subdivision 20-AJ

Establishing grapevines {Subdivision 387-DJ


The general rule

Exception


Limit on deductions

Destruction of grapevine

Extended meaning of 'owner'

Recoupments

Subdivision 387-D will allow a deduction for capital expenditure on grapevines used in primary production businesses. {section 387-300J

You can deduct capital expenditure in establishing a grapevine that you own in Australia and use in a primary production business. {section 387-305(1)]

The deduction is not available for expenditure on draining or clearing land. {section 387-310J

The deduction is spread over four years commencing when the grapevine is established. {subsections 387-305(2), (3)]

The deduction is not available for any period when the grapevine is not:

• owned by you; andlor • used by you in a primary production business.

{subsection 387-305(2)]

If the grapevine is destroyed, you can deduct the balance of the capital expenditure less any amounts, such as insurance recoveries, received as a result of the destruction. {section 387-315J

You will be taken to own a grapevine if: • it is on land that you hold under a quasi-ownership

right granted to you by a government agency; and • it was planted by you or a former holder of such a

right. {section 387-320J

The recoupment provisions will apply. {Subdivision 20-AJ

189


Mains electricity supply (Subdivision 387-EJ


The general rule·


What is 'connecting power to land' or 'upgrading the connection '?

Time limit

Limit on other deductions

Subdivision 387-E will allow a deduction for expenditure on mains electricity connections to land on which businesses are carried on./sections 387-350 and 387-370J

If you have an interest in land in Australia, or are a share farmer carrying on business on land in Australia, you can deduct capital expenditure on connecting power to land or upgrading the connection

You or another person must intend to use the electricity in a business producing assessable income./subsection 387~ 355(1)]

Deductions are spread over 10 years./subsection 387-355(2)]

Broadly, it is: • connecting mains electricity cable to the metering

point; • installation of metering equipment; • installation of equipment for use in the supply of

mains electricity to the metering point; and/or • work done to increase capacity./section 387-360J

You have 12 months from when the resulting electricity is first supplied to begin to use the electricity in a business. /section 387-365J

A once only deduction is available for mains electricity supply. /section 387-375J

Partnerships and partners Partners claim a deduction of the proportion agreed among them orin proportion to their share of the partnership net income or loss./section 387-380J

Recoupments The recoupment provisions will apply ./Subdivision 20-AJ

Telephone lines {Subdivision 387~FJ


190

Subdivision 387-F will allow a deduction for the cost of connecting telephone lines to land on which a primary production business is conducted. /section 387-400J

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The general rule



If you have an interest in land in Australia, or are sharefarrning it, you can deduct capital expenditure on a telephone line on, or extending to, that land.

You or another entity must be carrying on primary production on the land when the expenditure is incurred. {subsection 387-405(1)J

Deductions are spread over 10 years. {subsection 387-405(2)J

Limit on deductions Broadly, a deduction for telephone lines is only available to the entity which incurred the cost of its initial installation. {sections 387-410, 387-415J

Limit on other deductions If you have deducted an amount for expenditure on a telephone line neither you nor any other entity can deduct an amount under any other provision of the pending 1996 Act. {section 387-415J

Partnerships and partners Partners claim a deduction of the proportion agreed among them or in proportion to their share of the partnership net income or loss. {section 387-420J

Forestry roads and timber mill buildings {Subdivision 387-6/


The general rule

How much can you deduct?

The remaining life

Subdivision 387-G will allow deductions for forestry roads and timber mill buildings. {section 387-450J

You can deduct an amount for capital expenditure on construction or acquisition of:

• a forestry road used in a timber operation; and/or • a timber mill building used by you in carrying on a

business of milling timber. {sections 387-460 and 387-465J

Your deduction in any income year is a portion of your total capital expenditure worked out by:

• subtracting your previous deductions; and • dividing by the remaining life of the forestry road or

timber mill building. {section 387-470J

This is the lesser of: • your estimate of how long the forestry road or

timber mill building will be used for the purpose for which it was constructed or acquired; and 25 years. {section 387-470J

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Limits on when you can deduct

Limit on your capital expenditure on acquisition from another entity

Exception

Common rules

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Deductions are discontinued once you sell or stop using .. the forestry road or timber mill or if it is destroyed. A balancing adjustment is required if this happens.· .. /sections 387-480, 387-485} .

Usually, if you acquire aforestry road or timber mill building from another entity, your capital expenditure will be the price you paid for it. In some circumstances it may be a lesser amount./section 387-475}

No balancing adjustment is required if Common rule 1 (roll-over relieffor related entities) applies./Subdlvision 41-A, subsection 387-505(1)}

Common rules 1,2 and 3 will apply./DlvIsIoll41 "nd,ectIon 387-505}

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Capital allowances for primary producers and some land-holders·

B.D~sc~ssion of changes , ~" ,

Commlssio.ner's discretions to be replaced with objective tests

Change ObJective tests will replace some administrative discretions .

.. ··E~lari.tio~

To bring the rewritten law more in line with the self assessment system, the following discretions in the existing law will be replaced by objective tests (section references are to the 1936 Act):

Provisions Subject

70A(1)(d) Mains electricity supply

How replaced

Replaced with an objective test. /subparagraph 387-355(1)(b)(ii)J

••••• ;, .............................. 'l. •••••••••••••••••••••••••••••••••••••••••••••••••••••••• ;. ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

758(7)

758(14)

750(7)

75D(9)

I 24F(4)

I 24G(4), I 24J8(4)

I 24JE

Facilities to conserve or convey water Replaced with a test of reasonableness./section 387-135J

Facilities to conserve or convey water Replaced with a test of reasonableness./sections 41-65 and 387-145J

Landcare operations

Landcare operations

Forestry roads and timber mill buildings



Replaced with a test of reasonableness./section 387-135]

Replaced with a test of reasonableness./section 41-65 and subsection 387-65(2)J

Replaced with a test of reasonableness./section 387-500J

Replaced with a test of reasonableness./section 387-490J

Replaced with a test of reasonableness./section 41-65, subsection 387-505(2)J

Consolidation of recoupment provisions

Change As explained, various provisions requiring recoupment of deductible expenditure have been standardised and consolidated. /Subdivision 20-AJ

Explanation The consolidated recoupment provisions standardise and avoid repetition of provisions that apply to more than one deductible expense.

193


The provisions covered by this Division that are affected by this change are subsections 70A(8), 75AA(9), 75B(5) and 75D(9) of the 1936 Act.

Application of Division 41 Common rules

Change The Common rules will apply to this Division, as follows:

Subdivision Common Rule 1 Common Rule 2 Common Rule 3

387-A Does not apply Applies as modified Does not apply by section 387-65

387-B Does not apply Applies as modified Does not apply by section 387-145

387-0 Does not apply Does not apply Does not apply

387-E Does not apply Does not apply Does not apply

387-F Does not apply Does not apply Does not apply

387-0 Applies without Applies without Applies without modification modification modification {Section 387-505(J)f {Section 387-505(2)f {Section 387-505(3)f

Explanation Common rules for capital allowances are a new feature of the rewritten law. Where it is appropriate to do so they standardise and avoid repetition of provisions that apply to more than one capital allowance.

Subdivision 387-A Landcare operations

Section 387-60 Definition of landcare operation.

194

Change The term landcare operation is defined in this section.

Explanation The existing law allows deductions for various operations that relate to preventing or fighting land degradation. In the rewritten law these operations are referred to collectively as landcare operations. Landcare is a widely used and understood term.

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Section 387-65 No deduction for most plant

Change This section takes account of the rewrite of Section 54 of the 1936 Act and states clearly the existing rule that no deduction is allowable for plant other than some types of fences, dams and structural improvements.

Explanation Under the existing law the deduction for capital expenditure on landcare is not available for expenditure on plant or articles, except for:

• fences erected for a purpose now described in paragraphs 387-60(l)(a) or (b); or

• a dam or structural improvement (except a fence) now covered by paragraph (c), (d), (e) or (t) of the definition of plant in section 42-18.


Change This section modifies the application of Common rule 2.

Explanation Common rule 2, as modified by this section, will apply to capital expenditure on landcare operations. It will apply where you dispose of property and receive an amount that is less than the market value of that property. This is consistent with the existing law.

Subdivision 387-B Facilities to conserve or convey water

Section 387-130 Definition of water facility

Change The term water facility is defined in this section.

Explanation The term water facility has been defined to make clear what capital expenditure is deductible under Subdivision 387-B.


Change This section modifies the application of Common rule 2.

195


Explanation Common rule 2, as modified by this section, will apply to capital expenditure on a water facility. It will apply where you dispose of property and receive an I amount that is less than the market value of that property. This is consistent with the existing law.

Subdivision 387-E Mains electricity supply I Section 387-360 Definition of connecting power to land or upgrading the connection

Change The term connecting power to land or upgrading the connection has been defined in this section.

Explanation Under the existing law it is not readily apparent that the deduction for mains electricity supply extends to expenditure on upgrading supply. The new definition makes this clear.

Subdivision 387-F Telephone lines

Subsection 387-410 (1) (b) No deduction for expenditure which qualifies for depreciation deductions

196

Change Clarifies the extent to which the telephone lines and depreciation provisions apply to the cost of a telephone line.

Explanation A drafting device in subsection 56(3) of the 1936 Act ensures that, to the extent that the cost of telephone lines could be depreciated under section 54 or deducted under section 70, the cost is to be depreciated. This has been omitted because its presentation is confusing. The same result has been achieved by making this aspect clear in this provision.

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Subsections 387-410 (2) &(3) Deduction where the installer of the telephone line has claimed deductions

Change Allows a deduction for capital expenditure on a telephone line where a deduction for it has also been allowed to the entity which installed it for the taxpayer.

Explanation The existing law allows a deduction to the taxpayer who paid for the initial installation of a telephone line. The rewrite ensures that a deduction is still available to a taxpayer when a contracted installer has claimed deductions for their costs of installing the telephone line.

Subsection 387-410(2) applies when the installer has claimed a deduction for any amount relating to the telephone line. An example of this would be where the installer has claimed a deduction for the cost of cabling. The taxpayer who paid to have the telephone line installed will still be entitled to a deduction.

Subsection 387-410(3) applies similarly when the contracted installer has taken the cost of an item into account in working out a deduction under another provision of the Act. An example would be a depreciable machine used to lay the telephone line.

Subdivision 387-G Forestry roads and timber mill buildings

Section 387-460 Merging of deductions for expenditure on forestry roads and timber mill buildings

Change The provisions for forestry roads and timber mill buildings have been merged into one Subdivision.

Explanation The rewritten law merges two similar capital allowances which allow the write-off of capital expenditure on forestry roads and timber mill buildings. The only substantive difference between the existing subdivisions is their commencement dates and the merging has no practical impact.

197


Section 387-475 The write-off of previously deductible forestry roads or timber mill buildings

Change You will be able to write off a road or building on the basis of the price you paid for it, unless the Commissioner exercises a discretion to restrict your capital expenditure.

Explanation The existing law expressly limits your capital expenditure to the vendor's residual capital expenditure plus any balancing adjustment included in their assessable income. The Commissioner has a discretion to allow the road or building to be written off on the basis of your purchase price.

Under the rewritten law, if you acquire a forestry road or timber mill building from another taxpayer who was entitled to claim deductions for it, you will be able to calculate your deductions on the basis of the price you paid for it. The Commissioner will have an anti-avoidance discretion to reduce that purchase price.

In exercising the discretion, the Commissioner will take into account:

• the relationship between the parties; • the market value of the road or mill building; • how the price paid was calculated; and • how the purchase was financed.

Section 387-500 Capital expenditure on re-use of a timber mill building

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Change When a taxpayer resumes using a timber mill building after a period of nonuse, deductions will be allowed on a reasonable basis.

Explanation Under the existing law, if you stop using a forestry road or timber mill building, a balancing adjustment is made. This has the effect of reducing the balance of your capital expenditure to nil. The existing law explicitly provides that, where you recommence use of a forestry road after a period of non-use, the Commissioner may determine an amount of capital expenditure on which deductions may be based. There is no equivalent provision for timber mill buildings.

This change aligns them.

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Section 387-505 Application of Common rules

Change This section applies Common rules 1, 2 and 3 to this subdivision.

Explanation As explained earlier, there are 3 Common rules and they will all apply to capital expenditure on forestry roads and timber mill buildings.

C Provisions of the old law that have not been rewritten

Some provisions of the existing law have not been included in the rewritten law because they are redundant or have no ongoing application. They are summarised in the following table:

Provision Subject

subsections Application of debt forgiveness 70(JA), 70A(IA), provisions 75AA(IA), 75B(IA), sections 124EA,124JAA

paragraphs 70A(Il)(c), (d)

section 75A

subsection 75AA(10)

subsections 75B(2), (3)

subsection 75B(3C)

Meaning of certain terms.

Deduction for certain expenditure on land used for primary production incurred before 24/8183.

Assessment can be amended at any time to reduce deduction where expenditure recouped.

Deduction for capital expenditure on conserving or conveying water incurred on or before 19/9/85.

Pre 20/9/85 contracts for construction or installation.

subsection 75B(6) Pre 14/4/80 contracts for construction or installation.

subsections 75B(II)-(13)

Pre 14/4/80 contracts for acquisition of plant or structural improvements

Reason for omission

Provisions are unnecessary. The debt forgiveness provisions apply without the need for these provisions.

The provisions are drafting measures not needed in the rewritten provisions.

It has no current or ongoing application.

It is redundant in view of the recoupment provisions in Subdivision 20-A.





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subsection 758(15)

Meaning of certain tenns. It is unnecessary because of the definition of water facility.

subsection 75D(6) Expenditure prior to 1110/80 It has no current or ongoing application.

subsections 75D(10)-(J3)

subsection 124F(5)

subsection 124JA(4)

Rearrangement ofpre 1110/80 contracts It has no current or ongoing application.

Expenditure prior to 117/56

Expenditure prior to 117/63




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Part 1 of Schedule 11 to the Tax Law Improvement Bill 1996 will amend the pending Income Tax (Fransitional Provisions) Act 1996 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.

Part 1 comprises only one item, which will insert in Chapter 3 of the pending Income Tax (Fransitional Provisions) Act 1996 new Part 3-45, Division 387. Division 387 will set out how and when those rewritten sections will apply.

The rewritten provisions will apply to assessments for the 1997-98 or later income years. The transitional provisions allow capital expenditure not fully written off under the old law to be written off under the new provisions./sections 387-50, 387-120, 387-300, 387-350, 387-400 and 387-450, pending Transitional Provisions Act}

In some cases, it is necessary to specify that the rewritten provisions apply to deductions claimed in the 1997-98 or later income years even though certain key events may have happened before that time.

Those events are explained in the following table:


387-80

387-85

Subdivision

Subdivision 387-A

Subdivision 387-A

Purpose of the provision

Treats a management plan that was approved before the commencement of Subdivision 387-A as also having effect under that subdivision, and a plan approved under Subdivision 387-A as also having effect under section 750 of the existing law.

Provides that approvals and authorities in force immediately before the commencement of Subdivision 387-A also have effect after that

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387-140

387-315

387-375

387-410

387-415

387-470


Subdivision 387-8

Subdivision 387-0

Subdivision 387-E

Subdivision 387-F

Subdivision 387-F

Subdivision 387-G

commencement, and that approvals and authorities under Subdivision 387-A are also effective for the purpose of applying section 750 of the existing law.

Ensures that, where the old law disallows a deduction to a taxpayer who acquires a water facility for which the previous owner could claim deductions, this is maintained in the rewritten law.

Ensures that capital expenditure on the establishment of a grapevine that has been deducted under the old law is taken into account in determining the deduction allowable on destruction of the grapevine.

Ensures that taxpayers can claim deductions to which they are entitled under the old law if they have not claimed them before the commencement of Subdivision 387-E.

Ensures that deductions for the balance of a taxpayer's capital expenditure on a telephone line incurred under the old law are available under Subdivision 387-F.

Ensures that taxpayers can claim deductions to which they are entitled under the old law if they have not claimed them before the commencement of Subdivision 387-F.

Treats a taxpayer's residual capital expenditure on an access road used in a timber operation or a timber mill building under the old law as capital expenditure on a forestry road or timber mill building immediately after the commencement of Subdivision 387-G.

Where a taxpayer ceased tax deductible use of a forestry road or timber mill building before the commencement of Subdivision 387-G but recommences that use after it, the taxpayer's capital expenditure under the rewritten law will be the same as under the old law.

387-472 Subdivision 387-G Deductions a taxpayer claimed in prior years for forestry roads or timber mill

........................................ _ ............................................................................... ~~!.!~.!~.~~ .. ~~.~~.~~ .. !~~?~?~?.~.~~ .. !~ ............. .

201


........................................ _ ................................................................... ·········_··ca"icuiating·deii"iictioii·s··and"b"iiiiiiic·iiig-··· ... .

387-485 Subdivision 387-G



adjustments under the rewritten law.

Deals with situations where the prior owner of aforestry road or timber mill building was eligible for roll-over relief under the old law when the taxpayer acquired it from them. If the prior owner was eligible for relief, the balancing adjustment will have been postponed. This section ensures that the rewritten law takes account of the prior owner's capital expenditure and deductions by treating:

• amounts deductible to the prior owner as deductible to the taxpayer; and

• capital expenditure of the prior owner as the taxpayer's capital expenditure.

Modifies Common rule 1 so that it takes into account:

• rules contained in the old law; and • roll-over relief obtained under the

old law if a disposal of a forestry road or timber mill building takes place after the commencement of Subdivision 387-G.

Where the forestry road or timber mill building was acquired before the 1997-98 income year, capital expenditure incurred under the old law will be counted in determining whether the test in the non-arm's length transaction rule is satisfied.



Part 2 of Schedule II will amend the pending 1996 Act to update references to provisions rewritten in Division 387.

Updated references

. 202

Section 10-5 of the pending 1996 Act contains a list of all the provisions of both the existing and rewritten laws that deal with particular kinds of income_ Section 12-5 of the pending 1996 Act contains a similar table that deals with deductions .

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Part 2 of Schedule 11 will update references to provisions rewritten in Division 387. {Schedule 11, Part 2: items 2 to 11J

Section 40-30 of the pending 1996 Act contains a table of all the capital allowances. Part 2 of Schedule 11 will update references to existing provisions that have been rewritten in Division 387. {Schedule 11, Part 2: items 12 to 23J

Section 41-5 of the pending 1996 Act has a table of how the Common rules in Division 41 apply to various capital allowances. Part 2 of Schedule 11 also updates those references for provisions rewritten in Division 387. {Schedule 11, Part 2: items 24, 25J

Section 43-70 refers to items that are not included in construction expenditure. Part 2 of Schedule 11 updates references to the provisions as rewritten in Division 387./Schedule 11, Part 2: item 26J

Section 995-1(1) of the pending 1996 Act contains tables for calculating the termination value and written down value of property for particular capital allowances. Part 2 of Schedule 11 updates the tables adding references to forestry roads and timber mill buildings. {Schedule 11, Part 2: items 32 and 36J


Part 2 of Schedule 11 will add to the Dictionary (section 995-1 of the pending 1996 Act) new definitions of terms used in the rewritten provisions in Division 387 and a definition of timber operation in the existing law which is inserted without change. {Schedule 11, Part 2: item 34J

Definitions that are new or changed are explained below.

New Definition: Approved management plan. {Schedule 11, Part 2: item 27J

Commentary: Approved land management plan is defined in subsection 75D(14) of the 1936 Act. The definition incorporates the definitions of approved land management plan and land management plan in subsections 75D(l4) and 75D(19) of the existing law.

New Definition: Connecting power to land or upgrading the connection. {Schedule 11, Part 2: item 28J

Commentary: Under the present law it is not readily apparent that the deduction for mains electricity supply extends to expenditure on upgrading supply. To indicate more clearly what expenditure is deductible the term connecting power to land or upgrading the connection has been defined.

New Definition: Forestry road. {Schedule 11, Part 2: item 29J

Commentary: The term forestry road has been adopted to more clearly indicate what activity a road must be used for if expenditure is to be deductible.

New Definition: Landcare operation. {Schedule 11, Part 2: item 30J

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Commentary: The present law allows deductions for various operations that relate to preventing or limiting land degradation. In the rewritten law these operations have been collectively referred to as landcare operations.

New Definition: Metering point. ISchedule 11, Part 2: item 311

Commentary: The deduction for connecting mains electricity supply is only available for connections to the point where consumption of electricity supplied to the land through a mains electricity cable is measured. The term metering point has been used in Subdivision 387-E to indicate this.

New Definition: Timber mill building.ISchedule 11, Part 2: item 331

Commentary: The existing law allows deductions for buildings used as part of timber milling businesses. The new term timber mill building, in subdivision 387-G, encapsulates this requirement.

New Definition: Water facility. ISchedule 11, Part 2: item 351

Commentary: The term water facility has been defined to make clear what capital expenditure is deductible under Subdivision 387-B.


The amendments made by Part 2 of Schedule 11 apply to assessments for the 1997-98 and later income years.lclause 4 Tax Law Improvement Billl This ensures that consequential amendments take effect at the same time as substantive amendments relating to capital allowances for primary producers and landholders.


Part 3 of Schedule 11 will amend the 1936 Act to: • insert references to the rewritten provisions contained in Division 387

where the 1936 Act currently refers to the existing provisions; and • close off the application of provisions of the 1936 Act that have been

rewritten in Division 387, so that the existing provisions apply only to the 1996-97 and earlier income years.


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Part 3 of Schedule 11 will insert in the 1936 Act updated references to the rewritten provisions of Division 387. There are two categories of these amendments as discussed below.

The first will add a reference where a provision being consequentially amended:

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has not yet been rewritten and closed off; and can apply to amounts relating to more than one income year (including an income year earlier than 1997-98).

A reference to a rewritten provision will also be added in cases referring to a Division or Subdivision of the 1936 Act which is only partially rewritten. [Schedule 11, Part 2: items 45 to 50J

The second category will replace references to existing provisions in sections of the 1936 Act that:

• have not yet been rewritten and closed off; and • apply to amounts that relate to only one income year at a time, being the

1997-98 or a later income year. [Schedule 11, Part 2: items 43,51 to 57J


Part 3 of Schedule 11 will insert new provisions into the 1936 Act to close off the application of existing provisions that have been rewritten or are redundant. [Schedule 11, Part 2: items 38 to 42, 44J

The existing provisions closed off will only apply to the 1996-97 and earlier income years. This complements the transitional provisions in Part 1 of Schedule 11 which ensure that the corresponding rewritten provisions apply to the 1997-98 and later income years.

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This chapter explains amendments to the following legislation:

• pending 1996 Act; • pending Income Tax (Transitional Provisions) Act

1996; • pending Income Tax (Consequential Amendments) Act

1996; and • other Commonwealth legislation.

These amendments make minor consequential amendments to these Bills and Acts to take account of changes to the 1936 Act not discussed in earlier chapters.


Overview ofthis chapter

This chapter covers the provisions in Schedule 12 to the Tax Law Improvement Bill 1996.

It explains the amendments that need to be made to the pending 1996 Act, the 1936 Act, the pending Income Tax (Consequential Amendments) Act. 1996 and other Commonwealth legislation, because of changes to the 1936 Act.

Amendments of the pending Income Tu Assessment Act 1996

Part 1 of Schedule 12 will amend the 1996 Act to:

• adjust very minor technical issues of drafting and expression {SchUule 12,

Part I: lIems I, 2, 3, 5, 6, 8, 9 tlIId I3}; and

• account for the passage of rules for commercial debt forgiveness as enacted by the Taxation Laws Amendment Bill (No. 2) 1996. {Schedule 12, Part I: Ilems .I, 7,10 to I2}

Amendments of the Income Tu Assessment Act 1936

Part 2 of Schedule 12 will amend the 1936 Act to:

• substitute a new subsection 124ZZJ(S) to ensure that expenditure that is either qualifying expenditure within the meaning of Division 10D of the 1936 Act or is part of a pool of construction expenditure within the meaning of Division 43 of the pending 1996 Act is taken not to be establishment expenditure of a horticultural plant. {Schedule 12, Part 2: lie". U}

• account for the passage of rules for commercial debt forgiveness as enacted by the Taxation Laws Amendment Bm (No. 2) J 996. {Schedule 12, Part 2: items IS to 22}

Amendments of the pending Income Tu (Consequential Amendments) Act 1996

208

Part 3 of Schedule 12 will amend the pending Income Tax (Consequential Amendments) Act J 996 to accord with amendments of the 1936 Act

The pending Income Tax (Consequential Amendments) Act J 996 amends some provisions now being rewritten by the Tax Law Improvement Bill 1996. For provisions that, as a result, will have no ongoing operation after the Bill is

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passed, the amendments are to be repealed. [Schedule 12, Pan 3: items 23, 24,. 25, 26, 27,28/

Subsection 51 (7) of the 1936 Act prevents deductions for payments of training guarantee charge. The pending Income Tax (Consequential Amendments) Act 1996 amends the subsection to refer to deductions under section 8-1 of the pending 1996 Act. Because the Training Guarantee legislation has been repealed, such a deduction could not now arise under the 1996 Act. Therefore, the amendment will be omitted [Schedule 12, Pan 3: item 26].

The pending Income Tax (Consequential Amendments) Act 1996 will also amend provisions in other Commonwealth legislation that refer to provisions of the 1936 Act that have been rewritten. In some cases, those provisions in the other legislation have been repealed, so that the related amendme~ts are now not required [Schedule 12, Pan 3: item 29/.


Part 4 of Schedule 12 will amend Commonwealth legislation to: .

• insert a new provision, clause 54A, in the Airports (l'ransitional) Act 1996 to ensure that deductions allowable to the Federal Airports Corporation under Division 43 of the pending Income Tax Assessment Act 1996 are transferred to the new operato~ of Australia's federal airports [Schedule 12, Pan 4: Item 30/; and

• adjust the Legislative Instruments Act 1996, the Social Security Act 1991, the Student and Youth Assistance Act 1973 and the Veterans' Entitlements Act 1986 to adjust minor errors and update references due to the pending Income Tax Assessment Act1996.[Schedule 12 Pan 4: items 31 to 35/

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Dictionary

This chapter summarises how the proposed new law deals with definitions and the changes this Bill will make to the Dictionary of defined terms contained in the pending 1996 Act.

Dictionary


This chapter covers the definitions that the Tax Law Improvement Bill 1996 will add to the pending 1996 Act.

Part A of this chapter summarises how you can locate the definitions in the new law.

Part B explains how the Bill will incorporate definitions in the law.

Part C lists the new definitions and explains any changes from the definitions in the existing law.

A Summary of how the definitions can be located The Dictionary, located at the end of the pending 1996 Act (in Chapter 6), is the central reference point for locating the meaning of defined terms used in the new law.

All defined terms are listed in section 995-1. Each entry in that section either:

• sets out a defined term and its definition; or • directs the reader to where the term is defined.

The detail of the definitions is signposted in many cases. These are where it is more convenient and helpful to readers to place the definition where it is most relevant.

All defined terms (except a small number of common terms) will be identified by the symbol *, which will precede the term the first time it is used in each subsection.

Chapter 12 of the Explanatory Memorandum to the pending 1996 Act has a more detailed explanation of how the new law deals with definitions.

B. How this Bill incorporates new definitions in the law

212

The rewritten provisions that this Bill will insert into the pending 1996 Act, use many terms that are not yet defined in that Act.

Definitions of those terms will be included in the Dictionary by consequential amendments to subsection 995-1 (1). The consequential amendments are contained in Part 2 of Schedules 2 to 12 of this Bill.

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Dictionary.

Discussion of the definitions This Part of the chapter lists all the definitions that the Bill will add to the pending 1996 Act.

If there is a change in the use of a term, or a new term has been used, the list directs readers to the subject chapter that explains the change or new term. The explanations are included in Part E (consequential amendments) of each subject chapter.

Part B of each subject chapter also discusses any changes to the law caused by adopting a definition already in the pending 1996 Act (eg. using a standard definition instead of a slightly different one in the old law).

In the following explanations:

No change means that the term and its meaning from the 1936 Act are unchanged, although the words may have been changed to use a clearer or simpler style.

New label, previously '[word or expression]' means that a concept called '[word or expression]' in the 1936 Act has been given a new label in the pending 1996 Act.

New term means that the term is not defined in the 1936 Act.

Revised definition means that there has been substantive change in the meaning of the term appearing in the 1996 Act compared with the 1936 Act.

New label, previously Tribunal.

abnormal income No change.

Aboriginal

accrued leave transfer payment

approved management plan

No change.

No change.

New term, explained in Chapter 11 of this Explanatory Memorandum.

approved No change. occupational clothing guidelines

artwork

assessable recoupment

associated government entity

New label, previously eligible artwork.



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Dictionary

Australian New term, explained in Chapter 9 of this Explanatory government agency Memorandum. I balancing New term, explained in Chapter 8 of this Explanatory adjustment event Memorandum.

bereavement No change. subdivision I business meeting New term, explained in Chapter 7 ofthis Explanatory

Memorandum.

car depreciation New label, previously motor vehicle depreciation limit. limit

child No change.

closing balance No change.

connecting power to New term, explained in Chapter 11 of this Explanatory land or upgrading Memorandum. the connection

consideration The amount receivable under an insurance policy if a leased receivable on the car is lost or destroyed is added to the list of things that are disposal of a leased consideration receivable. Explained in Chapter 4 of this car. Explanatory Memorandum.

consideration No change. receivable for trading stock changing hands.

cost of a unit of There is no change to the general concept of cost. However plant for the rules are clarified and some new rules added. The depreciation changes are explained in Chapter 8 of this Explanatory purposes. Memorandum.

cost of an item of New label, previously cost price. A minor difference·for live

.~ trading stock stock acquired by natural increase is explained in Chapter 10 of this Explanatory Memorandum.

cultural No change. organisation

current year Revised definition, explained in Chapter 3 of this Explanatory Memorandum.

design No change.

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Dictionary

diminishing value New term, explained in Chapter 8 of this Explanatory

) method Memorandum.

diminishing value New label, previously annual depreciation percentage. rate

dining facility New label, previously eligible diningfacility.

) disease No change.

disentitling event New term, explained in Chapter 10 of this Explanatory Memorandum.

disposal year New label, previously the terms the year to which the election relates, the year of income in which the live stock were disposed of and the year of income in which the live stock died or was destroyed or disposed of

distributing body No change.

effective life No change.

entertainment New label, previously provision of entertainment.

environmental New term, explained in Chapter 6 of this Explanatory organisation Memorandum.

exempt Australian Revised definition. It covers those Australian government government agency agencies that are exempt from income tax. The term was

introduced by the pending 1996 Act and defined by reference to provisions in the 1936 Act. Some of those provisions have been rewritten in this Bill. The revised definition refers directly to rewritten provisions contained in this Bill. This will cause no change to the law. Explained in Chapter 9 of this Explanatory Memorandum.

FIF No change.

t foreign investment No change. fund

forestry road New label, previously access road.

friendly society No change.

» friendly society No change. dispensary

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Dictionliry

fringe benefit In the 1936 Act where the tenn 'fringe benefit' appears, it is stated to have the meaning it has in the Fringe BenejitsTax Assessment Act 1986. Here, it is fonnally defined to have the . .

goes for at least" hours

hire purchase agreement

same meaning.

New tenn, explained in Chapter 7 of this Explanatory Memorandum.

Revised definition. Explained in Chapter 8 of this Explanatory Memorandum.

horse opening value New label, previously opening value.

horse reduction amount

New label, previously reduction amount.

Industry Secretary No change.

in-house dining No change. facility

installed ready for New tenn, explained in Chapter 8 of this Explanatory use Memorandum.

land care operation New tenn, explained in Chapter 11 of this Explanatory Memorandum.

legal practitioner New tenn, explained in Chapter 5 of this Explanatory Memorandum:

leisure facility Revised definition. Explained in Chapter 5 of this Explanatory Memorandum.

livestock

member of the . Forces

metering point

mining payment .

non-compuisory

non-compuisory uniform

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No change.


New tenn, explained in Chapter 11 of this Explanatory' Memorandum.

No change.


No change.

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Dictionary

notional New term, explained in Chapter 8 of this Explanatory

) depreciation Memorandum. amount.

notional New label, previously the amount of depreciation that is depreciation· for a deemed in accordance with subsection 26AAB(6) to have

) lease period been allowable to the lessee in respect of the unit of

property, in respect of the period of the relevant lease agreement.

notional income No change.

notional written New label, previously notional amount. down value

occupation specifIC No change. clothing

opening balance No change.

ordinary payment New term, explained in Chapter 9 of this Explanatory Memorandum.

pension age No change.

period of the loan New term, explained in Chapter 5 of this Explanatory Memorandum.

plant The pending 1996 Act currently refers to the definition in section 54 of the 1936 Act. The Bill replaces the section 54 definition with a new definition in the pending 1996 Act. Explained in Chapter 8 of this Explanatory Memorandum.

pool No change.

previous New term, explained in Chapter 3 of this Explanatory recoupment law Memorandum.

" primary production New label, previously business of primary production, business explained in Chapter 10 of this Explanatory Memorandum.

prime cost method New term, explained in Chapter 8 of this Explanatory Memorandum.

prime cost rate New term, explained in Chapter 8 of this Explanatory Memorandum.

proceeds of the New label, previously three separate terms: proceeds of the disposal or death sale of the live stock, proceeds of the disposal of the live

stock and proceeds of the death of the live stock.

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Dictionary

proceeds of the sale New term, explained in Chapter 10 of this Explanatory of 2 wool clips Memorandum. ( profit on the New term, explained in Chapter 4 of this Explanatory disposal of a leased Memorandum. car

protective clothing No change. ( provide a fringe New label. In the 1936 Act the terms provide and fringe benefit benefit are defined by reference to section 136(1) ofthe

Fringe Benefits Tax Assessment Act 1986. The new label results in no change to the law.

quasi-owner New term, explained in Chapter 8 of this Explanatory Memorandum.

recognised tax New label, previously recognised professional tax adviser. adviser

recoupment New term, explained in Chapter 3 of this Explanatory Memorandum.

recreational club New label, previously club as defined in subsection 51AB(1) of the 1936 Act. The defined term 'club' in the pending 1996 Act will be repealed. That word will now take its ordinary meaning. This results in no change to the law.

reduction amount New label, previously the amount applicable in relation to the animal.

registered tax agent No change.

related entity New label, previously associated person.

roll-over event New term, explained in Chapter 8 of this Explanatory Memorandum.

royalty No change.

seminar No change.

Senior Executive No change. Service office

supplementary No change. ( amount

taxfree amount No change.

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tax profit on the disposal or death

termination value

Dictionary

New label, previously four separate terms: profit on the disposal of the live stock, profit on the death of the live stock, profit arising in respect of the death of the live stock and profit arising in respect of the disposal of the live stock.

The Bill adds to the table of termination values contained in section 995-1 of the pending 1996 Act. Explained in Chapters 8 and 11 of this Explanatory Memorandum.

timber mill building New definition, explained in Chapter 11 of this Explanatory Memorandum.

timber operation

trading stock

un deducted cost

uniform

No change.

Revised definition. Explained in Chapter 10 of this Explanatory Memorandum.


New label, previously a component of non-compulsory uniform/wardrobe.

unused tax profit on New label, previously reduced profit on the disposal or the disposal or death of the live stock. death

value of an item of trading stock

water facility

written down value

New term, explained in Chapter 10 of the Explanatory Memorandum.


An addition to the table of written down values contained in section 995-1 of the pending 1996 Act. Explained in Chapter 8 of this Explanatory Memorandum.

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Finding Tables

This chapter cross references provisions in the pending 1996 Act and Schedule 1 of the Tax Law Improvement Bill 1996 to their corresponding provisions in the 1936 Act (and vice versa).

Finding Tables


This chapter contains finding tables to enable you to locate quickly the rewritten provisions in:

• the Income Tax Assessment Bill 1996; or • Schedule 1 of the Tax Law Improvement Bill 1996;

that corresponds to a particular provision in the existing law, and vice versa.

In the finding tables:

No equivalent means that this is a new provision that has no equivalent in the law being rewritten. Typically, these would be guide materials.

Omitted means that the provision of the old law has not been rewritten in the new law.

Transitional means that the provision of the old law has been picked up by a provision in the Income Tax (Transitional Provisions) Bill 1996.

Proposed means that the provision is, at the time of preparing this Explanatory Memorandum, a clause within a Bill which may amend the Income Tax Assessment Act 1936.

Finding Table 1 - New Law to Old Law

~ __ N_e_W __ la_W __ ~ _____ O __ ld __ la_w ____ ~1 IL ___ N_e_W_l_a_W __ ~ _____ O __ ld __ la_w ____ ~ Division 1 6-10(3) 19 1-1 1 6-15 25(1) 1-2 No equivalent 6-20 6(1) 1-3 No equivalent 6-25 No equivalent Division 2 No equivalent Division 8 Division 3 No equivalent 8-1 51(1) Division 4 8-5 No equivalent 4-1 17 (in part) 8-10 82(1) 4-5 No equivalent Division 9 No equivalent 4-10 6(1) Division 10 No equivalent

17 Division 11 No equivalent 4-15(1) 48 Division 12 No equivalent 4-15(2) 6(1) Division 13 No equivalent Division 6 Division 15 6-1 No equivalent 15-1 No equivalent 6-5(1), (2), (3) 25(1) 15-3 26(eb) 6-5(4) 19 15-5 26(ec) 6-10(1), (2), (4), (5) 25(1) 15-10 26(g)

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Finding Tables

I L-__ N_e_W __ la_W __ ~ _____ O __ ld __ la_w ____ ~11 L ___ N_e_W __ la_W __ ~ _______ Old __ la_W ____ ~ 15-15 25A (in part) 20-35 260) (in part) 15-20 26(t) 26(k) 15-25 26(1) 63(3)

15-30 260) (in part) 69(8)

I 15-35 26Ob) Division 20 20-1 No equivalent 20-5 No equivalent 20-10 No equivalent 20-15 No equivalent 20-20 260) (in part)

26(k) 63(3) 69(8) 70A(5) 72(2) 730 74(2) 75AA(8) 75B(4) 750(4) 82AD(I) 82BE(I) 82BP(I) 82Z(4) 122T(I) 123A(2) 123BO(4) 124AQ(1) 124BO(I) 124ZZN(I) 635(1) 646(1)

20-25(1), (2) 82V(I) 20-25(3) 70A(6), (7) 20-25(4) 70A(8)

75AA(9) 75B(5) 750(5) 82AD(2) 82BE(2) 82BP(2) 122T(2) 123A(3)

72(2) 730 74(2) 75B(4) 750(4) 82AD(I) 82BE(I) 82BP(1) 82Z(4) 122T(1) 123A(2) 123BO(4) 124AQ(I) 124BO(1) 124ZZN(I) 635(1 ) 646(1)

20-40 260) (in part) 63(3) 70A(5) 72(2) 730 75AA(8) 75B(4) 82BE(I) 122T(1) 123A(2) I 23 BO(4) 124AQ(I) 124ZZN(I)

20-45 No equivalent 20-50 No equivalent 20-55 No equivalent 20-100 No equivalent 20-105 No equivalent 20-110 26AAB(I), (2), (13) 20-115 26AAB(1), (14,)(16),

(17) 20-120 26AAB(6), (7), (8) 20-125 26AAB(I), (2), (13),

123BO(5) (15)

I 24AQ(2) 20-130 26AAB(10)

124BO(2) 20-135 26AAB(I1) I 24ZZN(2) 20-140 26AAB(5) 635(2) 20-145 26AAB(12) 646(2) 20-150 26AAB(9)

20-25(5) No equivalent 20-155 26AAB(14) 20-30 No equivalent

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Finding Tables

L-__ N_e_W __ la_W __ ~ ______ O_ld __ la_w ____ ~11 L ___ N_e_W __ la_W __ ~ _______ Old __ la_W ____ ~ I 20-160 26AAB(I), (3), (4), (9), 28-5 I-I

(10), (12), (14), (16), 28-10 1-2 (17) 28-12 1-3 (in part)

Division 25 28-13 11-2 25-1 No equivalent 25-5 51(5)

69(1), (2), (3), (4) ,(5),

28-14 No equivalent 28-15 2-1(1) 28-20 2-1(2), (3), (4) I

(6), (9), (10), (11) 28-25 3-2 25-10 53 28-30 3-3 25-15 53AA 28-35 3-4 25-20 68 28-45 4-2 25-25 67 28-50 4-3 25-30 67A 28-55 4-4 25-35 63(1), (4) 28-60 4-5 25-40 52 28-70 5-2 25-45 71 28-75 5-3 25-50 78(11) 28-80 5-4 25-55 73 28-90 6-2 25-60 74(1) 11-3 25-70 74B 28-95 6-3 25-75 No equivalent 28-100 6-4 Division 26 28-105 7-1 26-1 No equivalent 28-110 7-1 26-5 51(4) 28-115 7-2 26-10 6G 28-120 7-3

51(3) 28-125 7-4 26-20 51(6), (6A) 28-130 7-5 26-30(1),(2) 51AG (I) 28-135 8-1 26-30(3) 5IAG(IA) 28-140 8-2 26-30(4),(5) 5IAG(2) 28-150 9-2 26-35(1) 65(1) 28-155 9-3 26-35(2) 65(ID)(a) 28-160 10-1 26-35(3) No equivalent 26-35(4) 65( I E), (1 F)

28-165 11-1 (in part) 28-170 10-2

26-40 65(2), (3) 28-175 10-3 26-45(1) 5IAB(3)(a), (4) 28-180 10-4 26-45(2) 5IAB(I) (in part) Division 30 26-45(3) 5IAB(5A) 26-50(1) 5IAB(3)(b), (4) 26-50(2), (3) 5IAB(I) (in part) 26-50(4) 5IAB(5), (6) 26-50(5) 5IAB(\) (in part) 26-50(6) 5IAB(5), (6) 26-50(7) 5IAB(2) 26-50(8) 5IAB(5A) 26-55 79C

82AC 640

Division 28 Schedule 2A 28-1 No equivalent

30-1 78(1) 30-5 No equivalent 30-10 No equivalent 30-15 item I 78(4), (12) 30-15 item 2 78(5), (12) 30-15 item 3 78(9),(10), (17) 30-15 item 4 78(6) 30-15 item 5 78(7) 30-15 item 6 78(8) Subdiv 30-B tables 78(4) 30-30 78(4), (26) (in part) 30-35 78(4), (26) (in part) 30-55 78(4)

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Finding Tables

I L-__ N_e_W __ la_W __ ~~ ____ O_ld __ la_w ____ ~1 LI ___ N_e_W __ la_W __ ~ _______ Old __ la_W ____ ~ 30-60 78(4),(2S) . 34-10(2) SIAL(I) 30-7S 78(24) 34-10(3) SIAL(4) (in part) 30-8S 78(19), (20), (21), (22), 34-lS SIAL(4)

(23) 34-20 SIAL(26) (in part)

I Subdiv 30-C 78(13), (14), (15), (15A),

(16), (18) Subdiv 30-D 78(6A), (6B), (6C), (6D),

34-2S(I) 5IAL(1l) 34-25(2) 5IAL(26)(in part) 34-2S(3) SIAL(12)

(6E), (6F), (6G), (16A), 34-30(1) SIAL(13) (2SA) 34-30(2) SIAL(18)

Subdiv 30-E 78AB 34-30(3) SlAL(14) Subdiv 30-F 78AA 34-33(1) SIAL(IS) Subdiv 30-G 78(3) 34-33(2) SIAL(16) Division 32 34-33(4),(5),(6) 5IAL(22) 32-1 No equivalent 34-3S SIAL(17) 32-S SIAE(4) 34-40 5IAL(21) 32-10 SIAE(3) 34-45(1) 51AL(5) 32-lS SIAE(14), (15) 34-4S(2) SIAL(6) 32-20 SIAE(SAA), (5AB) 34-50(1) 51AL(19) 32-2S No equivalent 34-50(2) 5IAL(20) 32-30 item l.l SI AE( S)( f)( i), (ii) 34-S5(1) SIAL(7) 32-30 item 1.2 SIAE(S)(f)(i) 34-S5(2) SIAL(9) 32-30 item 1.3 SIAE(S)(f)(iii) 34-SS(3) SIAL(8) 32-30 item 1.4 SlAE(S)(f)(vi) 34-60 SIAL(24) 32-30 item I.S 51AE(S)(f)(v) 34-65 SIAL(23) 32-30 item 1.6 SIAE(SA)(b) Division 36 32-30 item 1.7 SIAE(SA)(d) 36-1 No equivalent 32-30 item 1.8 SIAE(5)(e), (7) 36-10 79E(1) 32-3S item 2.1 SIAE(1), (S)(f)(iv) 36-IS 79E(3) 32-40 item 3.1 SIAE(5)(a) 36-20(1), (2) 79E(12), (13) 32-40 item 3.2 SIAE(5)(h) 36-20(3), (4) 79E(12) 32-4S item 4.1 51AE(5)(b) 36-2S No equivalent 32-45 item 4.2 51AE(5)(c) 36-30 No equivalent 32-45 item 4.3 SIAE(S)(d) 36-3S 79E(8) 32-S0 item S.1 51AE(S)O) 79F(8) 32-50 item S.2 SIAE(5)(k) 36-40(1) 79E(9) 32-5S SIAE(I) 36-40(2) 79F(9) 32-60 SIAE(I) 36-4S(I) 79E(10) 32-6S SIAE(1), (2) 36-45(2) 79F(10) 32-70 26AAAC, SIAE(9) Division 40 32-7S SIAE(13), (1S) 40-1 No equivalent 32-80 SIAE(1) 40-S No equivalent 32-85 SIAE(1), (S)(f)(i), (ii), 40-10 No equivalent

(iii), (v) 40-15 No equivalent 32-90 SIAE(8) 40-20 No equivalent Division 34 40-2S No equivalent 34-1 No equivalent 40-30 No equivalent 34-3 No equivalent Division 41 34-5 SlAL(2S), (26) (in part) 41-1 No equivalent 34-7 51 AL(25), (26) (in part) 41-5 No equivalent 34-10(1) SIAL(2) 41-10 No equivalent

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Finding Tables

L-__ N_e_w_�_a_w __ -L _____ o_�_d_�a_w ____ ~1 LI ___ N_e_W_I_aW ____ ~ ____ O~I_d_la_W ____ ~ 41-15 58(1)

I 41-40 122JAA(20), (21), (22)

122JAA(1), (2) 122JG(10), (11), (12) 122JG(1), (2) 123BBA(13), (14). (15) 123BBA(I), (2) 123BF(6), (7), (8) 123BF(1), (2) 124AMAA(I), (2) 124GA(I)

124AMAA(16), (17), (18) I 24GA(4) I 24JD(4) I

124JD(I) 41-50 262A(4AC) 41-20 58(1) 262A(4AO)

58(8) 41-55 59AA(2B), (2C) 122JAA(1), (23) 122R 122JG(1), (13) 123F 123BBA(I) I 24AO 123BF(I) 262A(4AA) 124AMAA(I), (19) 41-65 56(4) 124GA(I) 59(4) 124JD(I) 62(3)

41-23 58(2) 75B(14) 59AA(2A) 750(9) I 22JAA(2) 122L 122JG(2) 1230 123BBA(2) I 24AK 123BF(2) 124BE 124AMAA(2) 124JE

41-25 58(3) 41~85 54AA(4) 122JAA(3) 122U 122JG(3) 123G 123BBA(3) 124AR 123BF(3) 124JF 124AMAA(3) 124ZEA 124GA(2) 124ZLA 124JD(2) Division 42

41-30 58(4) 122JAA(4), (5), (8) 122JG(4), (5), (6) I 23BBA(4) I 23BF(4) 124AMAA(4), (5), (7) 124GA(3) I 24JD(3)

41-35 58(7A) 122JAA(22A) 122JG(12A) 123BBA(16) 123BF(9) 124AMAA(18A) 124GA(5) 124JD(5)

42-1 No equivalent 42-5 No equivalent 42-10 No equivalent 42-15 54(1) 42-18 54(2) 42-19 No equivalent 42-20(1) 56(1)

62AAP(1), (2) 42-20(2) 56(2)

61 42-25(1) 56(1)

62(1) 42-25(2) 54A

55 42-25(3) 56(IAA) 42-30(1) 59(1), (2)

62AAT(I)

226

Finding Tables

I L-__ N_e_W __ la_W __ ~ _____ O __ ld __ la_w ____ ~11 L ___ N_e_W __ la_W __ ~ _______ Old __ la_W ____ ~ 42-30(2) 59 42-105(3) 54A(1)(c), (1)(d)

59AAA 42-110(1) 54A(2) 62AAS 42-110(2) 54A(4)

42-30(3) 59(1) 42-115 No equivalent

I 59AA(I) 62AAT(I)

42-35 No equivalent

42-120 55(1), 55(8) 42-123(1) 55(3), (4) 42-123(2) 55(4)

42-40 54A(II) 42-125 55(2)(a)(ii), (5) 55(8A) 56(1)(b)(i) 56(1 AB) 59(2A), (2D) 59AB(3) 62AAC(2) 62AAE(2) 62AAF(2)

42-45(1) 54(5), (9) 42-45(2) 54(11) 42-45(3) 54(3), (3A), (4) 42-48 No equivalent 42-50 No equivalent 42-55 No equivalent 42-60 No equivalent 42-65 item 1 56(1)

60

42-130 55(2)(a)(i) 42-135 55(2)(a)(ii), (6)

56(1)(b)(i) 42-140 55(2), (7)

56(1)(b)(i) 42-145 55(3)

56(1)(b)(i) 42-150 55(4)

56( 1 )(b )(i) 42-155 No equivalent 42-160 56(1)(a), (lA), (18) 42-165 56(1)(b), (lA)

59(2A), (2D) 42-170(1) 56(IA), (1 C)

61 62(1)

42-65 item 2 No equivalent 42-170(2), (3) 54(3), (3A), (4) 42-175 61

42-65 item 3 No equivalent 42-65 item 4 No equivalent 42-65 item 5 54AA(2)(b )(i) 42-65 item 6 54AA(2)( c), (2)( e) 42-65 item 7 54AA(2)(d), (2)(f) 42-65 item 8 No equivalent 42-65 item 9 No equivalent 42-65 item 10 No equivalent 42-65 item 11 58(4)(a)(ii), (4)(b)(iv)

62(1) 42-180 No equivalent 42-185 59(1), (2) 42-190(1), (2) 59(2) 42-190(3) 58(7) 42-195(1), (2) 59(1) 42-195(3) 61 42-200 58(4)(b)(vi)

62(1) 42-65 item 12 No equivalent 42-205 item 1 59(3)(a), (5)(a) 42-65 item 13 No equivalent 42-205 item 2 59(3)(c), (5)(a) 42-70( 1), (2) 57AF(IO) 42-205 item 3 57AF(10) 42-70(3) 57AF(12)(d) 59(3)(a), (5)(a) 42-75 56(4) 42-205 item 4 59(3)(d)

62(3) 42-205 item 5 59AA(2), (4) 42-80 57 AF( I), (2)

57AF(12)(d) 42-85 56(3) 42-90 60

62(2) 62AAT(3)

42-95 No equivalent 42-100(1) 54A(I) 42-100(2) 54A(II)

42-205 item 6 No equivalent 42-205 item 7 No equivalent 42-205 item 8 54AA(2)(g) 42-205 item 9 54AA(2)(g), (3)(a), (3)(b)

59(3)(d) 59(4)

42-205 item 10 54AA(2)( c), (2)( e) 42-205 item II 54AA(2)(d), (2)(f)

42-105(1), (2) 54A(I)(b)

227

Finding Tables

~ __ N_e_W __ la_'W __ ~ ______ O_ld __ la_w ____ ~1 1L-__ N_e_W_I_a_W __ ~ _____ O __ ld __ la_W ____ ~ I 42-205 item 12 54AA(3)(c) 42-335(1), (2) 59AA(I)

59AA(2) 42-335(3) 59AA(2A) 42-205 item 13 No equivalent 42-340 No equivalent 42-205 item 14 59(3)(b) 42-345(1) 57AF(3) 42-208 No equivalent 42-210 59(4) 42-215 59(6)

42-345(2) 57AF(4), (6) 42-345(3) 57AF(5) 42-345(4) 57AF(7) I

42-220(1), (2) 59(2AA) 42-345(5) 57AF(8) 42-220(3), (4) 59(2AB) 42-350 62AAB 42-225 No equivalent 42-355 62AAC(I) 42-230 No equivalent 62AAO 42-235(1) 59AAA(I), (7) 42-360 62AAE(I) 42-235(2) 59(1), (2) 62AAF(3)

42-240(1), (2) 59(2) 42-365 62AAE(I)

42-240(3) 59AAA(5) 62AAF(3)

42-240(4) 58(7) 42-370(1) 62AAF(1)

42-245(1), (2) 59(1) 62AAF(3)

~12-245(3) 59AAA(4) 42-370(2)(a) 62AAG

61 42-370(2)(b) 62AAH

i 42-245(4) 59AAA(5) 42-370(2)(c) 62AAK

42-')50 59AAA(6) I-:-::-

42-... )5 59AAA(2), (3), (4)

42-370(3)(a) 62AAL 42-370(3)(b) 62AAM(1), (2)

42-260 59AAA(2) 62AAQ

42-265 No equivalent 42-370(3)(c) 62AAR(1)

42-270 No equivalent . 42-375 62AAP(I), (2)

42-275(1) No equivalent 42-275(2) 58(6)

42-380 62AAM(1), (2) 62AAN(1)

42-275(3) 262A(4AC) 42-275(4) 262A(4AA) 42-280 58(4) 42-285(1) 59(2A), (2C)

62AAT(2) 42-285(2) 59(2A) 42-285(3) 59(2B) 42-285(4) 59(2E) 42-290(1), (2) 59(20)

62AAT(2) 42-290(3) 59(2E) 42-295(1) 59AB(3), (4) 42-295(2), (3) 59AB(I) 42-300(1) 59AB(5), (6), (7) 42-300(2) 59AB(2) 42-305 No equivalent 42-310(1) No equivalent 42-310(2), (3) 54AA( I), (2)(b )(ii), (8) 42-310(4) No equivalent 42-315 54AA(5) 42-320 54AA(2)(a) 42-325 No equivalent

42-385 62AAO 42-390 62AAT(1)

42-395 62AAM(1), (2) 62AAU

Division 43 43-1 No equivalent 43-2 No equivalent 43-5 No equivalent 43-10 124ZC(I)(a), (b), (2)(a),

(b), (2A)(a), (b), (3)(a), (b), (4)(a), (b), (4A)(a), (b) 124ZH(I)(a), (b), (2)(a), (b), (2A)(a), (b)

43-15 124ZC(5), (5A), (5B) I 24ZH(3), (3A)

43-20(1) 124ZB(1)(a), (c), (2)(a), (b) 124ZG(1)(a), (c), (2A)(a), (c)

43-20(2), (3), (4) 124ZFB(I), (2), (4) 43-20(5) 124ZFC(1), (3)

.. ~

42-330 59AA(I)

228

Finding Tables

) I ~~_N_e_W_l_aW ____ ~ ____ O_I_d_la_W ____ ~1 1~ __ N_~ __ I_aW ____ ~ ____ O_ld __ la_W ____ ~

43-25(1) 124ZC(2A)(c), (d), 43-115 124ZC(1)(b), (2)(b) (4A)(c), (d) 124ZC(2A)(b), (3)(b), 124ZH(2A)(c), (d) (4)(b), (4A)(b)

43-25(2) 124ZC(1)(c), (2)(c), 124ZH(I)(b), (2)(b),

I (3)(c), (4)(c) 124ZH(1)(c), (2)(c)

43-30 .124ZA(15) 124ZF(10)

(2A)(b) 43-120 I 24ZA(8)

I 24ZC( I )(b), (2)(b), (2A)(b), (3)(b), (4)(b),

43-35 124ZH(6) (4A)(b)

43-40 124ZE(1), (2), (3), (4) 43-120 I 24ZF(8)

124ZK(1), (2) 124ZH(I)(b), (2)(b),

43-45 No equivalent (2A)(b)

43-50(1), (2) 124ZG(4) 43-125 124ZA(22)

43-50(3) 124ZA(25) 124ZF(13)

124ZF(16) 43-130 124ZA(24)

43-50(4), (5), (6) No equivalent 124ZF(15)

43-50(7) 124ZAAA 43-135 No equivalent

124ZFAA 43-140 124ZA(4), (5)

43-55 124ZC(6) 124ZF(3)

43-60 No equivalent 43-65 No equivalent 43-70(1) No equivalent 43-70(2) 124ZB(3), (4)

124ZG(3), (5) 43-75(1) 124ZA(2), (3)

124ZB(1)(b), (2)(d) 124ZF(2)

43-145 124ZA(4), (5) 124ZFA(2)

43-150 124ZFA(3) 43-155 No equivalent 43-160 124ZF(7)(b) 43-165 124ZA(7)

124ZF(7)(a) 43-170(1) 124ZF(4A)

124ZG(2A)(b) 43-170(2) 124ZF(1A)

43-75(2) 124ZA(2), (3) 43-170(3) 124ZF(6), (6A)

124ZB(1)(b), (d), 43-175(1) 124ZA(18) (2)(c), (d) 43-175(2) 124ZA(17) 124ZF(2) 43-180(1) 124ZA(19), (20) 124ZG(1)(b), (d), 43-180(2) 124ZA(9) (2A)(b), (d) 43-180(3) 124ZA(25)

43-75(3) No equivalent 43-180(4) 124ZA(12) 43-75(4) 124ZB(1)(c), (2)(b) 43-180(5) 124ZA(13)

124ZG(1)(c), (2A)(c) 43-180(6) 124ZA(10) 43-75(5) No equivalent 43-180(7) 124ZA(11) 43-75(6) No equivalent 43-185(1) 124ZF(4)(a) 43-80 No equivalent 124ZG(2)(d) 43-85 No equivalent 43-185(2) 124ZF(4)(a) 43-90 124ZB(1)(d), (2)(c) 124ZG(2)(c)

124ZG(1)(d), (2A)(d), 43-185(3) 124ZF(4)(b) (2B) 43-190(1) 124ZF(5)

43-95 124ZB(1)(c), (d), (2Xb), (c)

43-190(2) 124ZF(6)(a) 43-195 124ZF(1)

43-100 124ZL 43-200 No equivalent 43-105 No equivalent 43-110 No equivalent

43-205 No equivalent

229

Finding Tables

L-__ N_e_W __ la_W __ ~ _____ O __ ld __ la_w ____ ~1 1L-__ N_e_W_I_a_W __ ~ _____ O __ ld __ la_W ____ ~ 43-210 124ZC(2A)(c), (d), (e),

( 51-50 23(1)

(4A)(c), (d), (e), (5A), (5B Division 52 124ZD(J), (2) 52-1 24AAA 124ZH(2A)(c), (d), (e), 52-5 No equivalent (3A) 124ZJ(I)

43-215 124ZC(I)(c), (d), (2)(c), (d), (3)(c), (d),

52-10(2) 24ABB 52-10(3) No equivalent 52-10 table 24ABC

24ABD

( (4)(c), (d), (5) 24ABDB 124ZD(I), (2) 24ABDC 124ZH(I)(c), (d), 24ABE (2)(c), (d), (3) 24ABF 124ZJ(I) 24ABG

43-220 124ZH(4), (5) 24ABH 43-225 No equivalent 24ABI 43-230 124ZA(16), (16A), (16B) 24ABJA

124ZF(J I), (J lA) 24ABJ 43-235 124ZA(16A), (16B) 24ABM

124ZF(IIA) 24ABMA 43-240 I 24ZA(J 6) 24ABMB

124ZF(II) 24ABN 43-245 No equivalent 24ABO

43-250 I 24ZD(5) 24ABP

124ZE(J), (2), (3), (4) 24ABPA

I 24ZJ(2) 24ABQ

124ZK(I), (2) 24ABR

43-255 I 24ZE(5) I 24ZK(3)

43-260 I 24ZE(6) I 24ZK(4)

Division SO

24ABS 24ABT 24ABU 24ABV 24ABW

50-5 23( e), 23(g)(ii), 230) 50-10 23 (g)(v) 50-15 23(f) 50-20 23(g)(i)

24ABX 24ABXAA 24ABXA 24ABXB 24ABY

50-25 23(d) 24ABZ 50-30 23( ea), 23( eb) 24ABZA 50-35 230e), 230f) 24ABZAA 50-40 23(h) 52-15 24ABA(I) 50-45 23(g)(ii), 23(g)(iii),

23(g)(iv),23(k) Division 51 51-5 23(s), 23(sa), 23(t) 51-10 230c), 23(z), 23(zaa),

23(za) 51-15 23(a)(i) 51-25 23AE 51-30 23(kba), 23(ke), 23(1) 51-35 23(z) 51-40 23 (zaa) 51-45 23AE

230

Finding Tables

I I ~ ___ N_ew_·_l_a_W __ ~ _____ O_I_d_la_W ____ ~1 LI ___ N_ew __ l_aw ____ ~ ____ O_I_d_la_W ____ ~ 52-20(1), (2) 24ABC 52-65 table 24ACD

24ABD 24ACE 24ABDB 24ACF 24ABDC 24ACG

I 24ABE 24ABF 24ABG

24ACH 24ACHA 24ACI

24ABH 24ACJ 24ABI 24ACK 24ABJA 24ACL 24ABJ 24ACM 24ABM 24ACN 24ABMA 24ACO 24ABMB 24ACP 24ABN 24ACQ 24ABO 24ACR 24ABP 24ACS 24ABPA 24ACT 24ABQ 24ACU 24ABR 24ACV 24ABS 24ACW 24ABT 24ACWA 24ABU 52-70 24ACA 24ABV 52-75 No equivalent 24ABW 52-100 No equivalent 24ABX 24ABXAA 24ABXA 24ABXB 24ABY 24ABZ 24ABZA 24ABZAA

52-105 24AE(I) 52-110 24AE(2) 52-145 No equivalent 52-150(1) 24ABZF 52-150(2) 24ABZE(3), (4) 52-155 24ABZE{l) 52-160 24ABZF

52-20(3) 24A(a) 52-25 24ABZB

52-165 24ABZF 52-170 No equivalent

52-30 24ABZD Division 53

52-35 24ABF 53-1 No equivalent

24ABZC 53-10 24AF

52-40 No equivalent 52-60 No equivalent 52-65(1) No equivalent 52-65(2) 24ACB 52-65(3) 24ACC 52-65(4) No equivalent

24AG 24AI 24AIA 24AIB

53-15 24AIA 53-20 24AH Division 55 55-1 No equivalent 55-5 24AJ 55-10 24ABNA Division 70 70-1 No equivalent 70-5 No equivalent 70-10 6(1)

231

Finding Tables

~ __ N_e_W __ la_W __ ~ ______ O_ld __ la_w ____ ~1 LI ___ N_e_W __ la_W __ ~L-____ O_ld __ la_W ____ ~ ( 70-15 5 I (2A) 165-37(3) No equivalent 70-20 31C 165-40(1) 50H(I)(d) 70-25 51(2) 165-40(2), (3) 50D 70-30 No equivalent 165-45 50B(I) 70-35 28 70-40(1) 29 70-40(2) No equivalent

50D 50H(I)(a), (b), (c), (d)

165-45(4) No equivalent (

70-45 31(1) 165-50(1) 50B(3)

70-50 31(2) 165-50(2) 50B(2)

70-55 34 165-50(3) No equivalent

70-60 32A(I), (2), (5), (6), 165-55 50B(4)(b), (5)(b)

(10), (13) 165-55(2) 500(1), (2)

70-65 32A(7), (8), (9), (11), (12) 165-55(3) 50B( 4)(b )(i)

70-70 31(4), (5), (6) 165-55(4) 50B(4)(b)(i)

70-75 No equivalent 50C(2)(d), (3)

70-80 No equivalent 165-55(5) 50F(1), (2)

70-85 36(1) 165-55(6) 50F(I)

36A(I) 165-60 50B(4)(a), (5)(a) 37(1) 165-60(2), (3), (4) 50E(1), (2)

70-90 36(1) 165-60(5) 50L 70-95 36(1) 165-60(6) 50B(4)(a)(i) 70-100 36A 165-60(7) 50B(1) 70-105(1), (2), (3), 37 165-65 50C(2), (3), (4) (4), (5), (6) 165-70 50C(2) 70-105(7) Regulation 11 165-75 No equivalent 70-110 No equivalent 165-80(1) 50B(7) 70-115 260) 165-80(2) 50B(6), (8), (9) 70-120 36(7 A), (7B), (7C), (7D) 165-80(3), (4) 50E(2)Q)

124J 500(2)(0) Division 165 165-85 50E(2)(k) 165-1 No equivalent 500(2)(p) 165-5 No equivalent 165-90 50F(3), (4), (5) 165-10 80A(1) 165-150(1) 50H(I)(a)

80E 80A(1) 165-12(1), (2), (3) 80A(1) 165-150(2) 50J(2), (3) (4) 80A(3)(a) 165-12(5) 80A(2) 165-155(1) 50H(1)(b) 165-13 80A(I) 80A(I)

80E 165-155(2) 50J(4), (5) 165-15(1 ) 80DA(I)(d) 80A(3)(b) 165-15(2), (3) 80E 165-160(1) 50H(1)(c)

165-20 80A(5) 80A(1)

165-23 No equivalent 165-160(2) 50J(4), (5)

165-25 No equivalent 80A(3)(c)

165-30 No equivalent 165-165(1) No equivalent

165-35 50A(1) 50C(1) 50D

165-165(2) 50A(2)(b) 80A(l)

165-175 No equivalent (

50H(I)(a), (b), (c) 165-180 50K(I),(5)

165-37(1), (2) 50H(I)(a), (b), (c) 80B(5)

232

Finding Tables

) L-__ N_e_W_ .. _Ia_W __ ~L-____ O_Id __ Ia_w ____ ~1 LI ___ N_e_W __ Ia_W __ ~ ______ O_ld __ Ia_W ____ ~ 165-1S5 50K(7) 175-10(2) SODA(2)

S08(6) 175-10(3) SODA(6) 165-190 50K(6) 175-15(1) SODA(I)(b), (3)

S08(7) 175-15(2) SODA(4)

I 165-195 50K(3), (4)

S08(S) 165-200 No equivalent

175-15(3) No equivalent 175-20(1 ) 50H(I)(e) 175-20(2), (3) 50H(3)

165-205 50K(2) 175-25(1) 50H(1 )(t) S08(3) 175-25(2), (3) 50H(4)

165-210 50D 175-30(1), (2) 50H(1 )(g), (5) SOE

Division 166 No equivalent Division 170

175-30(3) No equivalent 175-30(4) 50H(6) 175-35 50C(2)

170-1 No equivalent 79E(2) 170-5(1) SOG(6) 175-65 50H(7) 170-5(2) SOG( 6)( d)(i), SODA(5)

SOG(6)(e)(i) Division 195 170-5(3) SOG(7), SOG(10) 195-1 No equivalent 170-5(4) SOG(6)(d)(ii), (6)(e)(ii), 195-5 79E8(1)

(6)(g) 170-5(5) SOG(6)(c)

195-10 SOG(9A) 195-15 79EA

170-5(6) SOG(6)(d) 79E8 170-\0(1) SOG(6) 195-15(5)(b) SOG(98) 170-10(2) SOG(6)(c) Division 330 170-15(1) SOG(6)(g) 330-1 No equivalent 170-15(2) SOG(6)(t) 330-5 No equivalent 170-20(1) SOG(6) 330-10 No equivalent 170-20(2) SOG(12) 330-15 122J(I), (4D) 170-25(1) SOG(17) 122JF(1), (7) 170-25(2) SOG(IS) 124AH(I), (4C) 170-30 SOG(I), (6)(d)(i), 330-20 122J(6)

(6)(e)(i) 122JF(12) 170-35(1)(a) SOG(6)(a) 124AH(7) 170-35(l)(b) SOG(6)(ba) 330-25 6(1) 170-35(2) SOG(9) 122JB(I) 170-35(3) SOG(6)(d)(ii), (6)(e)(ii) 1238C(1) 170-40(1) SOG(6)(b) 330-30 122(1) 170-40(2) SOG( 6)(g), (14) 122JB(I) , 170-45(1) SOG(10) 170-45(2) SOG(7) 170-45(3) SOG(S) 170-50 SOG(6A) 170-55 SOG(II) 170-60 SOG(6) 170-65 SOG(16) 170-70 SOG(15) Division 175 175-1 No equivalent 175-5 SODA(I) 175- \0(1) SODA(l )(a)

124(1) 330-35 122J(5)

122JF(9) 124AH(5)

330-40 122H 122JF(10) 122M 124AG

330-60 23(pa) Regulation 4

330-S0 122DG(2) 1221E(I) 1241l.DG(2)

233

Finding Tables

L-__ N_e_W __ la_W __ ~ ______ O_ld __ la_w ____ ~1 LI ___ N_e_W __ la_W __ ~ ______ O_ld __ la_W ____ ~ ( 330-85 122(1) 330-215 122BA(IO)

122A(I) I 24ABA(5)(c) 12218(1) 330-235 122B(I) 122JC(I) 1 22JD(I) I 24AA(2)

330-90 122(1) I 24AA(2)

124AB(I) 330-240 6(1)

122(1) (

330-95 I 22A(IB), (2) 12218(1) I 22JC(2), (3), (4) 330-245 122(4) I 24AA(2), (2A) 122B(I), (2)

330-100 122DG(3), (11) 12218(3) 122JE(2), (13) 122JD(I), (2) I 24ADG(3), (11) 124(5)

330-105 I 22DG(4), (5) 124AB(I), (3) 122JE(3), (4) 330-250 122B(3) 124ADG(4), (5) I 22JD(3)

330-110 No equivalent I 24AB(4)

330-115 122NB(I) 330-255 122B(5)

330-120 122DG(IO) I 22JD(5)

I 22JE(I2) 124AB(5)

I 24ADG(I0) 330-260 122B(5)

330-125 122(3) I 22JD(5)

12218(2) 124AB(5)

124(3) 330-265 122B(4)

330-145 122BA(I) I 22JD(4)

330-150 122BA(2) 330-270 122(5)

I 24ABA(I B) I 22JB(4)

330-155 I 22BA(I 2) 124(4)

1 24ABA(6) 330-275 I 22NB(2)

330-160 122BA(3) 330-295 No equivalent 124ABA(IA) 330-300 122DG(6)

330-165 1 22BA(I2) 122JE(5)

I 24ABA(6) I 24ADG(6)

330-170 122BA(4), (I I), (12) 330-305 I 22J(4B)

124ABA(I), (5)(d), (6) I 22JF(2)

330-175 122BA(7) 1 24AH(4A)

124ABA(4) 330-310 I 22DG(7)

330-180 122BA(5) 122J(4C), (4D)

124ABA(2) I 22JE(9)

330-185 122BA(6) 124ABA(3)

330-190 122BA(6) 124ABA(3)

330-195 122BA(6) 124ABA(3)

330-200 122BA(8) 124ABA(5)(a)

330-205 122BA(12) 124ABA(6)

330-210 122BA(9)

I 22JF( 6), (7) 1 24ADG(7) 124AH(4B), (4C)

330-315 122DG(6A), (6B) 122J(4BA), (4BB) I 22JE( 6), (7) 122JF(3), (4) 122M 124ADH(I), (2), (3) 124AH(4AA), (4AB), (4AC)

,

124ABA(5)(b)

234

Finding Tables

) L-__ N_e_W __ la_W __ ~~ ____ O_ld __ la_w ____ ~1 LI ___ N_e_W __ la_W __ ~~ ____ O_ld __ la_W ____ ~

330-320 1220G(8) 330-480 122JAA(I) 122JE(10) 122JG(I) 124AOG(8) 122K

330-325 1220G(9) 123C

) 122J(5) 122JE(l1) 122JF(9) 124AOG(9)

I 23BBA(1) 123BF(1) 124AM I 24AMAA(1)

124AH(5) 330-485 122K(2), (3) 330-330 122J(4E) 123C(2), (3)

122JF(8) 124AM(2), (3) 330-350 72A 330-490 I 22K(4) 330-370 123A 123C(4)

123B(I) I 24AM(7) 123BO(I) 330-495 No equivalent 123BE(I) 330-500 No equivalent

330-375 123(IA), (2) 330-520 122R 123A(I) 123F 123BC(2), (3) 124AO 123BO(I) 330-540 No equivalent

330-380 123(1), (lA) 330-545 No equivalent 123A(I), (lA) 330-547 No equivalent 123BC(2) 330-550 122JAA(4)(a), (c), (da) 123BO(l) 122JG(4)(a), (c)

330-385 123(1) 124AMAA(4)(a), (c), (e) 123A(I), (lA) 330-552 122JAA(20), (21), (22) 123BO(I) 122JG(10), (11), (12)

330-390 122(1) 123BBA(13), (14), (15) 12218(1) 123BF(6), (7), (8) 123(1) 124AMAA(16), (17), (18) 123BC(I) 330-555 122JAA(16) 124B 330-560 122L

330-395 123B(I) 1230 123BE(1) 124AK

330-400 123B(2) 124BE 123BE(2) 330-580 No equivalent

330-405 123C(6), (7) 330-590 122N 330-410 123EA 123E 330-415 123A(lC), (ID) I 24AN

123BO(2), (3) 330-595 124AJ(I) 330-435 124BA(I), (2) 330-600 I 24AJ(2) 330-440 124BB(1), (lA), (2), (3), 330-605 124AJ(3)

(4) Division 375 330-445 124B 330-450 124BC(I), (2), (3)

375-800 No equivalent 375-805(1) 79F(1), (2)

330-455 124BF 375-805(2), (3), 79F(12) 330-475 No equivalent (4), (5)

375-810 79F(1) 375-815 79F(6), (7), (12) 375-820 80AB

235

Finding Tables

New law Oldmw ~ IL ___ N_e_w __ la_w __ ~ _____ O __ ld __ la_w ____ ~

( Division 385 385-170 36AAA(l2), (13), (14) 385-1 No equivalent Division 387 385-5 No equivalent 387-1 No equivalent 385-90 No equivalent 387-50 No equivalent 385-95 No equivalent 385-100(1) 36(3), (3B)

36AAA(I), (lAA), (lA)

387-55(1 ) 750(1), (lA) 387-55(2) 750(2) 387-60 750(1 B) (

36AA(I), (lA) 387-65(1 ) 750(3) 385-100(2) 36AAA(l9A), (20) 387-65(2) 750(9)

36AA(7), (9) 387-70 750(7) 385-105(1 ) 36(3), (3A) 387-75 75D(8)

36AA(2) 387-80 750(14), (15), (19) 385-105(2) 36(3), (3A)

36AAA(23), (24) 36AA(2)

385-105(3) 36(8) 36AAA(l9B), (21) 36AA(8), (10)

385-110 36AAA(J), (lA), (2), (16) 385-115 36AAA(4), (4A) 385-120 36AAA(2)(b), (3), (I I),

(17), (19C), (22) 385-125 36AAA(2A), (4A) 385-130 26B(l), (2), (6) 385-135 26BA(2), (3), (6), (9) 385-145 26B(3), (4)

26BA(4), (5) 36(4), (5) 36AAA(l), (I AA), (lA) 36AA(3), (4)

387-85(1) 750(16) 387-85(2) 750(17) 387-90 75D(18), (19) 387-120 No equivalent 387-125(1) 75B(3A) 387-125(2) 75B(3B) 387-130 75B(I) 387-135 75B(7) 387-140 75B(8), (9) 387-145 75B(l4) 387-150 75B(IO) 387-300 No equivalent 387-305(1) 75AA(I) 387-305(2) 75AA(2), (4)(a) 387-305(3) 75AA(3) 387-310 75AA(5) 387-315 75AA(6), (7)

385-150 26B(5) 387-320 75AA(II), (12)

26BA(8) 387-350 No equivalent

36(7) 387-355(1) 70A(I), (11)(e), (t) 3MAA(l4) 387-355(2) 70A(3) 36AA(6) 387-360 70A(11)(a)

385-155 26B(8) 387-365(1) 70A(4) 26BA(6) 387-365(2) 170(10) (in part) 36(3A), (6) 387-370 70A(2) 36AAA(l5) 387-375 70A(9) 36AA(2), (5) 387-380 70A(10)

385-160 26B(7) 387-390 70A(l1)(b) 36(6) 36AAA(5), (6), (7), (9), (10) 36AA(5)

385-163 26B(7) 36(6) 36AAA(5), (6), (7), (9), (10) 36AA(5)

385-165 36AAA(8), (14)

387-400 No equivalent 387-405(1) 70(1) 387-405(2) 70(2) 387-410(1) 70(1) 387-410(2), (3) No equivalent 387-415 70(4) 387-420 70(3) 387-450 No equivalent 387-455 No equivalent

236

Finding Tables

I L-__ N_e_W __ la_W __ ~ _____ O __ ld __ la_w ____ ~11 L ___ N_e_W __ la_W __ ~ _____ O __ ld __ la_W ____ ~ 387-460 124F(I) Division 785

124JA(J) 785-1 No equivalent 387-465(1), (2) 124E 785-5 No equivalent 387-465(3) 124JA(I) Division 786

I 387-470 124F(2),(3) 124JA(2), (3)

387-475(1) 124H(2)

786-1 No equivalent 786-5 No equivalent Division 900 Schedule 2B

I 24JC(3) 900-1 No equivalent 387-475(2) 124H(I) 900-5 1-2

124JC(I) 900-10 I-I 387-475(3) I 24JC(2) 387-475(4) No equivalent

900-15 2-1 (in part) 2-3(4) (in part)

387-480(1) 124F(2), (3) 900-20 2-3(2) 124JA(2), (3) 900-25 2-4

387-480(2) 124F(l) 900-30 2-2 124JA(I) 900-35 2-5

387-480(3) 124F(2), (3) 900-40 2-6 124JA(5), (6) 900-45 2-7

387-485(1) 124G(I) 124JB(I)

387-485(2), (3), (4) 124G(2), (3) 124JB (2), (3)

387-490 124G(4) I 24JB(4)

387-495 124G(2), (3) 124JB (2), (3)

387-500 I 24F(4) I 24JA(6)

387-505(1) 124GA(l) 124JD(I)

387-505(2) 124JE 387-505(3) 124JF Division 750

900-50 2-8 900-55 2-9 900-60 2-10 900-65 2-11 900-70 3-2 900-75 3-3 900-80 4-2(6)

4-3(1), (3) 900-85 4-3(2) 900-90 4-4 900-95 4-2 900-100 5-1 (in part) 900-105 5-2 900-110 5-3

750-1 No equivalent 750-5 No equivalent 750-10 No equivalent 750-15 No equivalent 750-20 No equivalent Division 765

900-115 5-4 900-120 5-5 900-125 5-6 900-130 5-7 900-135 5-8 900-140 6-1 (in part)

765-1 No equivalent 765-5 No equivalent Division 766

900-145 6-1 (in part) 900-150 6-2 900-155 6-3


900-160 No equivalent 900-165 7-1 (in part) 900-170 7-2


900-175 7-3 900-180 7-4 900-185 7-5

768-1 No equivalent 768-5 No equivalent

900-195 8-1 900-200 8-2 900-205 8-3

237

Finding Tables

New law Old law

900-210 No equivalent (

900-215 9-1 (in part) 9-2

900-220 9-3 900-225 9-4 900-230 9-5 900-235 9-6 900-240 9-7 I 900-245 9-8 900-250 9-9 Division 909 909-1 No equivalent Division 950 950-100 No equivalent 950-105 No equivalent 950-150 No equivalent Division 960 960-100 No equivalent Division 975 975-100(1) 80G(5) 975-100(2) 80G(5A) 975-100(3) 80G(5B) 975-150 80G(2)(b), (4) 975-500 80G(I) 975-505(1) 80G(2)(a) 975-505(2), (3) 80G(2)(b) 975-505(4) 80G(3) Division 995 995-1(1) 6(1) 995-1(2) No equivalent

,t

238

Finding Tables

Finding Table 2 - Old Law to New Law

I ~ ____ O_I_d_l_a_W ____ ~ ____ N_e_W_I_a_w __ ~1 1L-____ O_l_d_l_aw ______ ~ __ N __ eW __ l_aW __ ~ 1 1-1 24(1) Omitted 6(1) 4-10 24A(a) 52-20(3)

I 4-15(2) 6-20 70-10

24AA(I) Omitted 24AA(2) Omitted 24AAA 52-1

330-25 24AB Omitted 330-240 995-1(1)

6G 26-10 17 4-1

4-10 19 6-5(4)

6-10(3) 22 Omitted 23(a)(i) 51-15 23(d) 50-25

24ABA(I) 52-15 24ABA(2) Omitted 24ABA(3) Omitted 24ABA(4) Omitted 24ABB 52-10(2) 24ABC 52-10 table

52-20(1), (2) 24ABD 52-10 table

52-20( I), (2) 24ABDB 52-10 table

23(e) 50-5 23(ea) 50-30

52-20( I), (2) 24ABDC 52-10 table

23(eb) 50-30 52-20(1), (2) 23(ec) Omitted 24ABE 52-10 table 23(t) 50-15 52-20( I), (2) 23(g)(i) 50-20 24ABF 52-10 table 23(g)(ii) 50-5 52-20( I), (2)

50-45 52-35 23(g)(iii) 50-45 24ABG 52-10 table 23(g)(iv) 50-45 52-20(1), (2) 23(g)(v) 50-10 24ABH 52-10 table 23(h) 50-40 52-20(1), (2) 23(j) 50-5 24ABl 52-10 table 23(jc) 51-10 52-20( I), (2) 23(je) 50-35 24ABJA 52-10 table 23(jt) 50-35 52-20(1), (2)

23(k) 50-45 24ABJ 52-10 table

23(kba) 51-30 52-20(1), (2)

23(ke) 51-30 24ABL Omitted

23(1) 51-30 24ABM 52-10 table

51-50 52-20( I), (2)

23(pa) 330-60 24ABMA 52-10 table

23(s) 51-5 52-20( I), (2)

23(sa) 51-5 24ABMB 52-10 table

23(t) 51-5 23(z) 51-10

51-35

52-20( I), (2) 24ABN 52-10 table

52-20(1), (2)

23 (zaa) 51-10 51-40

24ABNA 55-10 24ABO 52-10 table

23 (za) 51-10 23AE 51-25

52-20(1), (2) 24ABP 52-10 table

51-45 52-20( I), (2)

239

Finding Tables

L-____ O_�_d_�a_w~ __ ~L_ __ N_e_w_l_a_w __ ~1 IL _____ O_ld __ la_W ____ ~ ____ N_e_W_I_a_W __ ~ 24ABPA 52-10 table

I 24ACI 52-65 table

52-20(1), (2) 24ACJ 52-65 table 24ABQ 52-10 table 24ACK 52-65 table

52-20(1), (2) 24ACL 52-65 table 24ABR 52-10 table

52-20( I), (2) 24ABS 52-10 table

24ACM 52-65 table 24ACN 52-65 table 24ACO 52-65 table I

52-20(1), (2) 24ACP 52-65 table 24ABT 52-10 table

52-20( 1), (2) 24ACQ 52-65 table 24ACR 52-65 table

24ABU 52-10 table 24ACS 52-65 table 52-20(1), (2) 24ACT 52-65 table

24ABV 52-10 table 52-20(1), (2)

24ABW 52-10 table 52-20(1), (2)

24ABX 52-10 table 52-20(1), (2)

24ABXAA 52-10 table 52-20(1), (2)

24ABXA 52-10 table

24ACU 52-65 table 24ACV 52-65 table 24ACW 52-65 table 24ACWA 52-65 table 24AE(I) 52-105 24AE(2) 52-110 24AF 53-10 24AG 53-10

52-20(1), (2) 24ABXB 52-10 table

24AH 53-20 24AI 53-10

52-20(1), (2) 24ABY 52-10 table

24AIA 53-10 53-15

52-20(1), (2) 24ABZ 52-10 table

24AIB 53-10 24AJ 55-5

52-20(1), (2) 24ABZA 52-10 table

25(1) 6-5(1), (2), (3) 6-10(1), (2), (4), (5)

52-20(1), (2) 6-15

24ABZAA 52-10 table 25A 15-15

52-20(1), (2) 26(eb) 15-3

24ABZB 52-25 26(ec) 15-5

24ABZC 52-35 26(f) 15-20

24ABZD 52-30 26(g) 15-10

24ABZE(I) 52-155 26(h) Omitted

24ABZE(2) Omitted 26(j) 15-30

24ABZE(3), (4) 52-150(2) 24ABZF 52-150(1)

52-160

20-20 20-35 20-40

52-165 70-115

24AC Omitted 26(ja) Omitted

24ACA 52~70 26(jb) 15-35

24ACB 52-65(2) 24ACC 52-65(3) 24ACD 52-65 table

26(k) 20-20 20-35

26(1) 15-25

24ACE 52-65 table 26AAAC 32-70

24ACF 52-65 table 24ACG 52-65 table 24ACH 52-65 table 24ACHA 52-65 table

26AAB(I) 20-110 20-115 20-125 20-160

240

Finding Tables

) L-____ O_I_d_la_w ______ L-__ N_e_w __ la_w __ ~11 L _____ O_I_d_la_W ______ L-__ N_e_W __ la_W __ ~ 26AAB(2), (13) 20-110 36(1) 70-85

20-125 70-90 26AAB(3), (4) 20-160 70-95

26AAB(5) 20-140 36(3) 385-100(1 )

I 26AAB(6), (7), (8) 20-120 26AAB(9) 20-150

20-160

385-105(1), (2) 36(3A) 385-105(1), (2)

385-155

26AAB(10) 20-130 36(3B) 385-100(1)

20-160 36(4), (5) 385-145

26AAB(11) 20-135 36(6) 385-155

26AAB(12) 20-145 385-160

20-160 385-163

26AAB(l4) 20-115 36(7) 385-150

20-155 36(7A), (7B), (7C), (7D) 70-120 20-160 36(8) 385-105(3)

26AAB(15) 20-125 36(9), (10) Omitted 26AAB( 16), (17) 20-115 36AAA(I), (lA) 385-100(1)

20-160 385-110

26AAB(l8) Omitted 385-145

26AB Omitted 36AAA(IAA) 385-100(1)

26B(I), (2), (6) 385-130 385-145

26B(3), (4) 385-145 36AAA(2) 385-110

26B(5) 385-150 385-120

26B(7) 385-160 36AAA(2A) 385-125

385-163 36AAA(3), (11), (17), 385-120

26B(8) 385-155 (19C), (22)

26BA(2), (3), (9) 385-135 36AAA(4) 385-115

26BA(4), (5) 385-145 36AAA(4A) 385-115

26BA(6) 385-135 385-125

385-155 36AAA(5), (6), (7), (9), 385-160

26BA(7), (10) Omitted (10) 385-163

26BA(8) 385-150 36AAA(8) 385-165

28 70-35 36AAA(12), (13) 385-170

,-29 70-40(1) 31(1) 70-45 31(2) 70-50 31(3) Omitted 31(4),(5), (6) 70-70 31(7) Transitional 31C 70-20 32 Omitted

36AAA(14) 385-150 385-165 385-170

36AAA(15) 385-155 36AAA(16) 385-110 36AAA(18), (19), (25) Omitted 36AAA(19A), (20) 385-100(2) 36AAA(19B), (21) 385-105(3)

32A(I), (2), (5), (6), 70-60 (10), (13) 32A(3), (4) Omitted 32A(7), (8), (9), (11), 70-65 (12) 33 Omitted

36AAA(23), (24) 385-105(2) 36AA(I), (lA) 385-100(1) 36AA(2) 385-105(1), (2)

385-155 36AA(3), (4) 385-145

36AA(5) 385-155

34 70-55 385-160 385-163

36AA(6) 385-150 36AA(7), (9) 385-100(2)

241

Finding Tables

~ ____ O_ld __ la_W ____ ~ ___ N_e_W __ la_w __ ~11 L _____ O_�d __ �a_w ____ ~ ___ N_e_W __ la_W __ ~ ( 36AA(8), (10) 385-105(3) 50H(I)(b) 165-35 36AA(1l) Omitted 165-37 36A 70-85 165-45

70-100 165-155(1)

37 70-85 70-105(1), (2), (3), (4), (5), (6)

50H(1)(c) 165-35 165-37 165-45

( 48 4-15(1) 165-160(1)

50A(1) 165-35 50H(I)(d) 165-40(1)

50A(2)(a) Omitted 165-45

50A(2)(b) 165-165(2) 50H(IXe) 175-20(1)

50B(I) 165-45 50H(I)(f) 175-25(1)

165-60(7) 50H(1)(g) 175-30(1), (2)

50B(2) 165-50(2) 50H( 1 )(h), (2), (8), (9), Omitted

50B(3) 165-50(1) (10)

50B(4)(a) 165-60 50H(3) 175-20(2), (3)

50B(4)(b) 165-55 50H(4) 175-25(2), (3)

50B(5) 165-55 50H(5) 175-30(1),(2)

165-60 50H(6) 175-30(4)

50B(6) 165-80(2) 50H(7) 175-65

50B(7) 165-80(1) 50J(1) Omitted

50B(8), (9) 165-80(2) 50J(2), (3) 165-150(2)

50B(10), (11), (12), (13) Omitted 50J(4), (5) 165-155(2)

50B(14) 165-55(5)(b) 165-160(2)

50C(1) 165-35 50J(6) 995-1(1)

50C(2) 165-65 50K(1) 165-180(1)

165-70 50K(2) 165-205

175-35 50K(3), (4) 165-195

50C(3) 165-65(4), (5) 50K(5) 165-180

50C(4) 165-65(5) 50K(6) 165-190 50D 165-35(b) 50K(7) 165-185

165-40(2), (3) 50K(8), (9) Omitted 165-45(3) 50L 165-60(5) 165-210 50N Omitted

50E(1) 165-60(2), (3), (4) 51(1) 8-1 50E(2) 165-60(2), (3), (4), 51(2) 70-25

(6) 51(2A) 70-15 165-80 51(3) 26-10 165-85

50F(1) 165-55(5), (6) 50F(2) 165-55(5) 50F(3), (4), (5) 165-90 500(1) 165-55(2)

51(4) 26-5 51(5) 25-5 51(6),(6A) 26-20 51AB(I) 26-45(2)

26-50(2), (3), (5)

, 500(2) 165-55(2), (3) 51AB(2) 26-50(7)

165-80 165-85

50H(1)(a) 165-35 165-37 165-45 165-150(1)

51AB(3)(a) 26-45(1) 51AB(3)(b) 26-50(1) 51AB(4) 26-45(1)

26-50(1) 51AB(5) 26-50(4), (6)

242

Finding Tables

I ~ ____ O_I_d_l_aW ______ ~ __ N_e_W __ la_w __ ~11 L _____ O_�_d_�_aw ______ ~ __ N_e_W_._la_W __ ~

SIAB(SA) 26-4S(3) SIAG(1A) 26-30(3) 26-50(8) SIAG(2) 26-30(4), (5)

5IAB(6) 26-50(4), (6) SIAL(1) 34-10(2) 5IAE(I) 32-35 item 2.1 SIAL(2) 34-10(1) , 32-55

32-60 32-65 32-80

SIAL(3) Omitted 5IAL(4) 34-10(3)

34-15 54-10

32-85 SIAL(S) 34-4S(I) SIAE(2) 32-65 SIAL(6) 34-45(2) 5IAE(3) 32-10 SIAL(7) 34-SS(I) 5IAE(4) 32-5 SIAL(8) 34-5S(3) 5IAE(5)(a) 32-40 item 3.1 SIAL(9) 34-5S(2) SIAE(5)(b) 32-45 item 4.1 SIAL(IO) Omitted 5IAE(5)(c) 32-45 item 4.2 SIAL(ll) 34-2S(I) 5IAE(5)(d) 32-45 item 4.3 SIAL(12) 34-2S(3) 5IAE(5)(e) 32-30 item 1.8 SIAL(13) 34-30(1) 5IAE(5)(f)(i) 32-30 items l.l, 5IAL(14) 34-30(3)

1.2 32-85

SIAE(S)(f)(ii) 32-30 item 1.1 32-85

SIAE(S)(f)(iii) 32-30 item 1.3 32-8S

5IAE(S)(f)(iv) 32-3S item 2.1 5IAE(S)(f)(v) 32-30 item I.S

32-85 5IAE(S)(f)(vi) 32-30 item 1.4 SIAE(S)(g) Omitted 5IAE(S)(h) 32-40 item 3.2

SIAL(1S) 34-33(1) SIAL(16) 34-33(2) SIAL(17) 34-3S SIAL(18) 34-30(2) SIAL(19) 34-S0(1) 5IAL(20) 34-S0(2) SIAL(21) 34-40 SIAL(22) 34-33(4), (5),(6) SIAL(23) 34-65 SIAL(24) 34-60 SIAL(2S) 34-S

34-7 SIAE(5)(j) 32-50 item S.I SIAE(S)(k) 32-S0 item S.2

SIAL(26) 34-S 34-7

SIAE(SAA), (SAB) 32-20 34-20 SIAE(SA)(a), (c), (e), Omitted (f), (g)

34-2S(2) 99S-I(I)

SIAE(SA)(b) 32-30 item 1.6 S2 25-40 SIAE(SA)(d) 32-30 item 1.7 53 2S-10 SIAE (SB), (6) Omitted 53AA 2S-IS 5IAE(7) 32-30 item 1.8 SIAE(8) 32-90 SIAE(9) 32-70 SIAE(10), (11), (12) Omitted 5IAE(13) 32-7S 5IAE(14) 32-IS

Proposed 54(1A) Omitted S4(1) 42-IS S4(2) 42-18 54(2A), (6), (10) Omitted 54(3) 42-4S(3)

42-170(2), (3) SIAE(1S) 32-15 S4(3A) 42-4S(3)

32-7S 42-170(2), (3) SIAE(16) 97S-S00 54(4) 42-45(3) SIAE(17), (18) 97S-S0S 42-170(2), (3) SIAE(19) 97S-ISO S4(5),(9) 42-45(1) SIAG(1) 26-30(1), (2) S4(11) 42-4S(2)

243

Finding Tables

~ ____ O_I_d_la_W ______ L-__ N_e_W_I_a_w __ ~11 ~ _____ O_I_d_la_W ______ ~ __ N_e_W __ la_W __ ~ Proposed 54AA(IA) Omitted

I Proposed 56( I AAA) Omitted

54AA(I) 42-310(2), (3) 56(1) 42-20(1) 54AA(2)(a) 42-320 42-25(1) 54AA(2)(b )(i) 42-65 item 5 56(1)(a) 42-160 54AA(2)(b )(ii) 42-310(2), (3) 54AA(2)(c) 42-65 item 6

42-205 item 10

56(1)(b) 42-65 item 1 42-125 42-135

, 54AA(2)(d) 42-65 item 7 42-140

42-205 item 11 42-145

54AA(2)(e) 42-65 item 6 42-150

42-205 item 10 42-165

54AA(2)(t) 42-65 item 7 56(IAA) 42-25(3)

42-205 item 11 56(IA8) 42-40

54AA(2)(g) 42-205 item 8 56(1 A) 42-160

42-205 item 9 42-165

54AA(3)(a), (3)(b) 42-205 item 9 42-170(1)

54AA(3)(c) 42-205 item 12 56(18) 42-160

54AA(4) 41-85 56(1C) 42-170(1)

54AA(5) 42-315 56(2) 42-20(2)

54AA(6) 995-1(1) 56(3) 42-85

54AA(7) 995-1(1 ) 56(4) 41-65

Transitional 42-75

54AA(7A) 995-1(1) 57AF(I), (2) 42-80

54AA(8) 42-310(2), (3) 57AF(3) 42-345(1)

995-1(1) 57AF(4), (6) 42-345(2)

54A(I) 42-25(2) 57AF(5) 42-345(3)

42-100(1) 57 AF(9), (11) Omitted 42-105 57AF(7) 42-345(4)

54A(2) 42-110(1) 57AF(8) 42-345(5) 54A(3), (5), (6), (7), (8), Omitted 57AF(10) 42-70(1), (2) (9), (10), (13), (14) 42-205 item 3 54A(4) 42-110(2) 57AF(12)(a), (b), (c) Omitted 54A(lI) 42-40 57AF(12)(d) 42-70(3)

42-100(2) 42-80(2) 54A(l2) Transitional 57AK Omitted 55(1) 42-25(2) 57AM Omitted

42-120 58(1) 41-15 55(2) 42-125 41-20

42-130 58(2) 41-23 42-135 58(3) 41-25 42-140(3) 58(4) 41-30

55(3) 42-123(1) 42-65 item 11 42-145 42-200

55(4) 42-123 42-280 42-150 58(5) Omitted

55(5) 42-125 58(6) 42-275(2) 55(6) 42-135 58(7) 42-190(3) 55(7) 42-140 42-240(4) 55(8) 42-120 58(7A) 41-35 55(8A) 42-40 58(8) 41-20 55(9) 995-1(1) Proposed 59(IA) Omitted

244

Finding Tables

) L-____ O_�d __ �a_w ____ ~ ____ N_e_w_l_a __ w~1 LI _____ O_I __ dla_W ____ ~ ____ N_e_W_I_a_W __ ~

59(1) 42-30 59AA(2A) 41-23 42-185 42-335(3) 42-195(\), (2) 59AA(2B), (2e) 41-55 42-235(2) 59AA(3) Omitted

) 42-245(\), (2)

59(2) 42-30 42-185 42-190(\), (2) 42-235(2) 42-240(1), (2)

59(2AA) 42-220(\), (2) 59(2AB) 42-220(3), (4) 59(2A) 42-40

42-165(3) 42-285(\), (2)

59(2B) 42-285(3) 59(2C) 42-285(1 ) 59(20) 42-40

59AA(4) 42-205 item 5 59AB(I) 42-295(2), (3) 59AB(2) 42-300(2) 59AB(3) 42-40

42-295(1) 59AB(4) 42-295(\) 59AB(5) 42-300(1)(a) 59AB(6) 42-300(1)(b) 59AB(7) 42-300( 1)( c) 60 42-65 item I

42-90 61 42-20(2)

42-170(\) 42-175

42-165(3) 42-290(1), (2)

59(2E) 42-285(4) 42-290(3)

42-195(3) 42-245(3)

62(\) 42-25(1) 42-65 item 1

59(3)(a) 42-205 items I, 42-175 3 42-200

59(3)(b) 42-205 item 14 Proposed 62(\ A) Omitted 59(3)(c) 42-205 item 2 62(2) 42-90(2) 59(3)(d) 42-205 items 4, 9 62(3) 41-65 59(4) 41-65 42-75

42-205 item 9 62AAA Omitted 42-210 62AAB 42-350

59(5)(a) 42-205 items 1,2, 3

59(5)(b) Omitted

62AAC(I) 42-355 62AAC(2) 42-40 62AAO 42-355

59(6) 42-215 Proposed 59AAA(\A) Omitted

62AAE(\) 42-360 42-365

59AAA(I) 42-30(2) 42-235(1)

59AAA(2) 42-255 42-260

59AAA(3) 42-255

62AAE(2) 42-40 62AAF(\) 42-370(\) 62AAF(2) 42-40 62AAF(3) 42-360

42-365 59AAA(4) 42-245(3)

42-255 59AAA(5) 42-240(3)

42-245(4)

42-370(1) 62AAG 42-370(2)(a) 62AAH 42-370(2)(b) 62AAJ Omitted

)

59AAA(6) 42-250 59AAA(7) 42-235(1) 59AAA(8) Transitional 59AA(I) 42-30(3)

42-330

62AAK 42-370(2)( c) 62AAL 42-370(3)(a) Proposed 62AAM(\A) Omitted 62AAM(I), (2) 42-370(3)(b)

42-380 42-335(1), (2) 42-395

59AA(2) 42-205 items 5, 12 62AAN(\) 42-380

245

Finding Tables

~ ____ O_I_d_la_W ____ ~L-__ N_e_W_I_a_w __ ~11 L _____ O_I_d_l_aW ______ L-__ N_e_W __ la_W __ ~ Proposed 62AAN(2) Omitted 70A(10) 387-380

( 62AAO 42-385 70A(11)(a) 387-360 Proposed 62AAP(IA) Omitted 70A(11)(b) 387-390 62AAP(1), (2) 42-20(1) 70A(11)(c), (d) Omitted

42-375 62AAQ 42-370(3)(b) 62AAR(I) 42-370(3)(c) Proposed 62AAR(2) Omitted

70A(ll)(e), (f) 387-355(1) 71 25-45 72(1), (lA), (18), (le), Omitted (ID), (lE), (IF), (IG),

( 62AAS 42-30(2) (I H), (3), (4) 62AAT(I) 42-30(1), (3) 72(2) 20-20

42-390 20-35 62AAT(2) 42-285 20-40

42-290 72A 330-350 62AAT(3) 42-90(3) 73 25-55 62AAU 42-395 73D 20-20 62AAV Omitted 20-35

63(1), (4) 25-35 20-40

63(2) Omitted 74(1) 25-60

63(3) 20-20 74(2) 20-20

20-35 20-35

20-40 74B 25-70

64 Omitted 75A Omitted

64A Omitted Proposed 75AA(lA) Omitted

65(1) 26-35(1) 75AA(1) 387-305(1) 65(ID)(a) 26-35(2) 75AA(2), (4)(a) 387-305(2) 65(IE),(lF) 26-35(4) 75AA(3) 387-305(3)

65(2),(3) 26-40 75AA(4)(b) Transitional

67 25-25 75AA(5) 387-3 IO

67A 25-30 75AA(6), (7) 387-315

68 25-20 75AA(8) 20-20

69(1), (2), (3), (4), (5), 25-5 20-40

(6), (9), (10), (11) 75AA(9) 20-25(4) 69(8) 20-20 75AA(10) Omitted

20-35 75AA(II), (12) 387-320 70(1) 387-405(1) 75B(I) 387-130

387-410(1) Proposed 75B(IA) Omitted Proposed 70(IA) Omitted 75B(2), (3), (3C), (6) Omitted 70(2) 387-405(2) 75B(3A) 387-125(1) 70(3) 387-420 70(4) 387-415 Proposed 70A(1A) Omitted 70A(1) 387-355(1)

75B(3B) 387-125(2) 75B(4) 20-20

20-35 20-40

( 70A(2) 387-370 75B(5) 20-25(4)

70A(3) 387-355(2) 75B(7) 387-135

70A(4) 387-365(1) 75B(8), (9) 387-140

70A(5) 20-20 75B(10) 387-150 20-40

70A(6), (7) 20-25(3) 70A(8) 20-25(4)

75B(\I), (12), (13) Omitted 75B(14) 41-65

387-145 (

70A(9) 387-375 75B(l5) Omitted

246

Finding Tables

) ~ ____ O_I_d_la_W ____ ~~~N_e_W_l_a_w __ ~11 ~ _____ O_I_d_la_W ____ ~~ __ N_e_W_l_a_W __ ~

750(1), (lA) 387-55(1) 79E(2) 36-25 750(lB) 387-60 165-70 750(2) 387-55(2) 175-35 750(3) 387-65(1) 79E(3) 36-15

I 750(4) 20-20

20-35 750(5) 20-25(4) 750(6) Omitted

79E(4) 36-25 79E(5), (6) 790A(I) 79E(7) 790A(2) 79E(8) 36-35

750(7) 387-70 79E(9) 36-40(1) 750(8) 387-75 79E(1O) 36-45(1) 750(9) 41-65 79E(II), (14) Omitted

387-65(2) 79E(12) 790A(I) 750(10), (11), (12), (13) Omitted 36-20 750(14), (15) 387-80 79E(13) 36-20(\), (2) 750(16) 387-85(1) 79EA 195-15 750(17) 387-85(2) 79EB 195-5 750(18) 387-90 195-15 750(19) 387-80 79F(l) 375-805(\)

387-90 375-810 78(1) 30-1 79F(2) 375-805(1) 78(2) Omitted 79F(3), (4), (5), (1\) Omitted 78(3) Subdiv 30-G 79F(6), (7) 375-815 78(4) 30-15 item 1 79F(8) 36-35

Subdiv 30-B tables 79F(9) 36-40(2) 30-30 79F(10) 36-45(2) 30-35 79F(\2) 375-805 30-55 375-815(2) 30-60 80 Omitted

78(5) 30-15 item 2 80AAA Omitted 78(6) 30-15 item 4 80AA Omitted 78(6A), (6B), (6C), (60), Subdiv 30-0 80AB 375-820 (6E), (6F), (6G), (16A), 80AC Omitted (25A) 78(7) 30-15 item 5

80A(I) 165-10 165-12

78(8) 30-15 item 6 165-13 78(9), (10), (17) 30-15 item 3 165-150(\) 78(11) 25-50 165-155(1) 78(12) 30-15 items \,2 165-160(1) , 78(13), (14), (15), (15A), Subdiv 30-C (16), (18) 78(\ 9), (20), (21), (22), 30-85 (23)

165-165 80A(2) 165-12(5) 80A(3) 165-150(2)

165-155(2) 78(24) 30-75 165-160(2) 78(25) 30-60 80A(4) 995-1(1) 78(26) 30-30 80A(5) 165-20

30-35 80B(I), (4), (9), (10), (\ 1) Omitted

) 78AA Subdiv 30-F 78AB Subdiv 30-E 79C 26-55

80B(3) 165-205 80B(5) 165-180 80B(6) 165-185

79E(I) 36-10 80B(7) 165-190

247

Finding Tables

L-____ O_l_d_la_w ____ ~L_ __ N_e_w_l_a_w __ ~1 1~ _____ O_ld __ la_W ____ ~ ____ N_e_W_I_a_W __ ~ SOB(S) 165-195 SOG(9B) 195-15(5)(b)

( SODA(I) 175-5 SOG(10) 170-5(3) SODA(I)(a) 175-10(1 ) 170-45(1) SODA(I)(b) 175-15(1) SOG(II) 170-55 SODA(I)( c), (7), (S), (9) Omitted SODA(I)(d) 165-15( I) SODA(2) 175-10(2) SODA(3) 175-15(1)

SOG(12) 170-20(2) SOG(I3) Omitted SOG(14) 170-40(2) SOG(l5) 170-70

( SODA(4) 175-15(2) SOG(l6) 170-65 SODA(5) 175-65 SOG(I7) 170-25(1) SODA(6) 175-10(3) SOG(IS) 170-25(2) SOE 165-10 S2(1) S-IO

165-13 S2AC 26-55 165-15(2), (3) S2AO(I) 20-20 165-210(1), (2), (3) 20-35

SOF 63CA S2AO(2) 20-25(4) SOG(I) 170-30 S2BE(I) 20-20

975-500 20-35 SOG(2)(a) 975-505(1) 20-40 SOG(2)(b) 975-150 S2BE(2) 20-25(4)

975-505(2), (3) S2BE(3) Omitted SOG(3) 975-505(4) S2BP(I) 20-20 SOG(4) 975-150 20-35 SOG(5) 975-100(1) S2BP(2) 20-25(4) SOG(5A) 975-100(2) S2BP(3) Omitted SOG(5B) 975-100(3) S2V(I) 20-25(1), (2) SOG(6) 170-5 S2Z(4) 20-20

170-10 20-35 170-20(1) 122(1) 330-30 170-60 330-S5

SOG(6)(a) 170-10(1) 330-90 170-35(1 )(a) 330-240

SOG(6)(b) 170-10(1) 330-390 170-40(1) 122(2) Omitted

SOG(6)(ba) 170-35(1)(b) 122(3) 330-125 SOG(6)(c) 170-5(1), (5) 122(4) 330-245

170-10(2) 122(5) 330-270 SOG(6)(d) 170-5(2), (4), (6) 122AA Omitted

170-30 122AB Omitted 170-35(3)

SOG(6)(e) 170-5(2), (4) 170-30 170-35(3)

SOG(6)(f) 170-15(2)

122A(I) 330-S5 122A(1A), (1C) Omitted 122A(1B), (2) 330-95 122B(1) 330-235

330-245

f SOG(6)(g) 170-15(1) SOG(6A) 170-50 SOG(7) 170-5(3)

170-45(2) SOG(S) 170-45(3)

122B(2) 330-245 122B(3) 330-250 122B(4) 330-265 122B(5) 330-255

330-260 (

SOG(9) 170-35(2) SOG(9A) 195-10

122BA(I) 330-145

248

Finding Tables

) L-____ O_I_d_l_aw ______ L-__ N_e_w_l_a_w __ ~11 L _____ O_I_d_la_W ____ ~L-__ N_e_W_I_a_W __ ~ 122BA(2) 330-150 122JAA(I) 41-15 122BA(3) 330-160 41-20

122BA(4), (11) 330-170 330-480

) 122BA(5) 330-180 122BA(6) 330-185

330-190 330-195

122JAA(2) 41-15 41-23

I 22JAA(3) 41-25 122JAA(4), (5), (8) 41-30

122BA(7) 330-175 122JAA(4)(a), (c), (da) 330-550 122BA(8) 330-200 122JAA(6), (7), (11), (12) Transitional

122BA(9) 330-210 122JAA(9), (10), (13), Omitted

122BA(IO) 330-215 (14), (15), (17), (18)

122BA(l2) 330-155 122JAA(16) 330-555

330-165 122JAA(19) Omitted 330-170 1222JAA(20), (21), (22) 41-40 330-205 330-552

122C Transitional 122JAA(22A) 41-35 1220 Transitional 122JAA(23) . 41-20 1220A Transitional 122JB(I) 330-25 1220B Transitional 330-30

1220C Transitional 330-85

12200 Transitional 330-240

1220E Transitional 330-390

1220F Transitional 122JB(2) 330-125

1220G(I), (6C) Omitted 122JB(3) 330-245

1220G(2) 330-80 I 22JB(4) 330-270

1220G(3), (11) 330-100 122JBA Omitted

1220G(4), (5) 330-105 122JC(I) 330-85

1220G(6) 330-300 122JC(2), (3), (4) 330-95

1220G(6A), (6B) 330-315 1220G(7) 330-310 1220G(8) 330-320 I 220G(9) 330-325 1220G(10) 330-120 122H 330-40

122JD(I) 330-235 330-245

122JD(2) 330-245 122JD(3) 330-250 122JD(4) 330-265 122JD(5) 330-255

122J(1 ) 330-15 122J(2), (3), (3A), (4), Transitional (4A) 122J(4B) 330-305 122J(4BA), (4BB) 330-315 122J(4BC) Omitted I 22J(4C) 330-310

330-260 122JE(I) 330-80 122JE(2), (13) 330-100 I 22JE(3), (4) 330-105 122JE(5) 330-300 122JE( 6), (7) 330-315 122JE(8) Omitted

122J(40) 330-15 122JE(9) 330-310

330-310 122JE(IO) 330-320

122J(4E) 330-330 122JE(l1) 330-325

122J(5) 330-35 122JE(l2) 330-120

a 330-325 122J(6) 330-20 122JA Omitted

122JF(I) 330-15 122JF(2) 330-305 122JF(3), (4) 330-315 1221F(5), (11) Omitted 122JF(6) 330-310

249

Finding Tables

L-____ O_�_d_�a_w ____ ~L_ __ N_e_w_l_a_w __ ~1 LI _____ O_ld __ la_W ____ ~ ____ N_e_W_I_a_W __ ~ ( 122JF(7) 330-15 123A(I) 330-375

330-310 330-380 122JF(8) 330-330 330-385

122JF(9) 330-35 123A(lA) 330-380 330-325

122JF(l0) 330-40 122JF(l2) 330-20

330-385 123A(IB). (lE), (IF), Omitted (I G)

( 122JG(I) 41-15 123A(IC), (ID) 330-415

41-20 123A(2) 20-20 330-480 20-35

122JG(2) 41-15 20-40

41-23 123A(3) 20-25(4)

122JG(3) 41-25 123AA Omitted

122JG(4), (5), (6) 41-30 123B(I) 330-370

122JG(4)(a), (c) 330-550 330-395

122JG(4)(d), (5), (6) Transitional 123B(2) 330-400

122JG(7), (8) Omitted 123BA Omitted

1 22JG(9) Omitted 123BB Omitted

122JG(IO), (11), (12) 41-40 123BBA(I) 41-15

330-552 41-20

122JG(12A) 41-35 330-480

122JG(l3) 41-20 123BBA(2) 41-15

122KAA Omitted 41-23

122K 330-480 123BBA(3) 41-25

330-485 123BBA(4) 41-30

330-490 123BBA(5), (6), (7), (8), Omitted

122KA Omitted (9), (10), (11)

122L 41-65 123BBA(12) Omitted

330-560 123BBA(13), (14), (15) 41-40

122M 330-40 330-552

330-315 123BBA(l6) 41-35

122N 330-590 123BC(I) 330-25

122NB(I) 330-115 330-390

122NB(2) 330-275 123BC(2) 330-375

122NB(3) Omitted 330-380

122R 41-55 123Bq3) 330-375

330-520 123BCA Omitted

122S Omitted 123BD(I) 330-370

122T(I) 20-20 20-35 20-40

122T(2) 20-25(4)

330-375 330-380 330-385

123BD(2), (3) 330-415 1 122U 41-85 123BD(4) 20-20

123(1) 330-380 330-385

20-35 20-40

330-390 123BD(5) 20-25(4)

123(1A) 330-375 330-380

123BE(I) 330-370 330-395

123(2) 330-375 123BE(2) 330-400

123AAA Omitted 123A 330-370

250

Finding Tables

L-____ O_l_d_la_w ____ ~~ __ N_e_w_l_a_w __ ~11 L _____ O_ld __ la_W ____ ~ ____ N_e_W_l_a_W __ ~ 123BF(I) 41-15 I 24ABA(4A) Omitted

41-20 I 24ABA(5)(a) 330-200 330-480 I 24ABA(5)(b) 330-210

I 23BF(2) 41-15 I 24ABA(5)(c) 330-215 41-23 I 24ABA(5)(d) 330-170

123BF(3) 41-25 124ABA(6) 330-155 123BF(4) 41-30 330-165 123BF(5) Omitted 330-170 123BF(6), (7), (8) 41-40 330-205

330-552 124AC Transitional I 23BF(9) 41-35 124AD Transitional 123CA Omitted I 24ADA Transitional 123C(1), (2), (3), (4) 330-480 124ADB Transitional

330-485 I 24ADC Transitional 330-490 I 24ADD Transitional

123C(5) Omitted 124ADE Transitional 123C( 6), (7) 330-405 124ADF Transitional 123D 41-65 124ADG(I) Omitted

330-560 I 24ADG(2) 330-80 123E 330-590 123EA 330-410

124ADG(3), (11) 330-100 124ADG(4), (5) 330-105

123F 41-55 330-520

123G 41-85 124(1) 330-30 124(2) Omitted 124(3) 330-125 124(4) 330-270 124(5) 330-245

I 24ADG(6) 330-300 124ADG(7) 330-310 124ADG(8) 330-320 ~ADG(9) 330-325

I 24ADG(1 0) 330-120 I 24ADH(1), (2), (3) 330-315 I 24ADH(4) Omitted 124AE Omitted

124AAA Omitted I 24AF Omitted 124AA(I), (2B), (3) Omitted 124AG 330-40 I 24AA(2) 330-85

330-90 330-95

I 24AA(2A) 330-95 124AB(I) 330-235

330-245 I 24AB(2) Omitted 124AB(3) 330-245

124AH(I), (4AA), 330-15 (4AB), (4AC) 124AH(2), (3), (4) Transitional I 24AH(4A) 330-305 I 24AH(4AD) Omitted I 24AH(4B) 330-310 I 24AH(4C) 330-15

330-310 I 24AB(4) 330-250 I 24AB(5) 330-255

I 24AH(5) 330-35 330-325

330-260 124ABA(l) 330-170 124ABA(IA) 330-160 124ABA(IB) 330-150 I 24ABA(2) 330-180 I 24ABA(3) 330-185

I 24AH(6) Transitional I 24AH(7) 330-20 I 24AJ(l) 330-595 I 24AJ(2) 330-600 I 24AJ(3) 330-605 124AK 41-65

330-190 330-560 330-195

I 24ABA(4) 330-175 124AL Omitted

251

Finding Tables

~ ____ O_ld __ Ia_W ____ ~~ __ N_e_W_I_a_w __ ~1 1~ ____ O_ld __ Ia_W ____ ~ ____ N_e_W_I_a_W __ ~ 124AM(l), (2), (3), (7) 330-480 124F(5) Omitted

330-485 124G(1) 387-485(1 ) 330-490 124G(2), (3) 387-485(2), (3), (4)

124AM(4), (5), (6) Omitted 387-495 124AMAA(1) 41-15 124G(4) 387-490

41-20 124GA(I) 41-15 330-480 41-20

124AMAA(2) 41-15 387-505(1 ) 41-23 124GA(2) 41-25

I 24AMAA(3) 41-25 124GA(3) 41-30 124AMAA(4), (5), (7) 41-30 124GA(4) 41-40 124AMAA(4)(a), (c), (e) 330-550 124GA(5) 41-35 I 24AMAA(4)(aa) Omitted 124H(I) 387-475(2) I 24AMAA(6), (10), (11) Transitional 124H(2) 387-475(1 ) 124AMAA(8), (9), (12), Omitted 124J 70-120 (13), (14) Proposed 124JAA Omitted 124AMAA(15) Omitted 124JA(1) 387-460 124AMAA(16), (17), 41-40 387-465(3) (18) 330-552 387-480(2) 124AMAA(l8A) 41-35 124JA(2), (3) 387-470 124AMAA(19) 41-20 387-480(1) 124AMA Omitted 124JA(4) Omitted 124AN 330-590 I 24JA(5) 387-480(3) 124AO 41-55 124JA(6) 387-480(3)

330-520 387-500 124AP Omitted 124JB(I) 387-485(1) 124AQ(I) 20-20 124JB(2), (3) 387-485(2), (3), (4)

20-35 387-495 20-40 124JB(4) 387-490

124AQ(2) 20-25(4) 124JC(I) 387-475(2) 124AR 41-85 124JC(2) 387-475(3) 124B 330-390 124JC(3) 387-475(1)

330-445 124JD(1) 41-15 124BA 330-435 41-20 124BB 330-440 387-505(1) 124BC 330-450 124JD(2) 41-25 124BO(I) 20-20 124JD(3) 41-30

20-35 124JD(4) 41-40 I 24BO(2) 20-25(4) 124JD(5) 41-35 124BO(3) Omitted 124JE 41-65 124BE 41-65 387-505(2)

330-560 124JF 41-85 124BF 330-455 387-505(3) 124E 387-465(1), (2) 124ZA(I), (6), (21), (23) Omitted Proposed 124EA Omitted 124ZA(2), (3) 43-75(1), (2) 124F(1) 387-460 I 24ZA(4), (5) 43-140

387-480(2) 43-145 I 24F(2), (3) 387-470 I 24ZA(7) 43-165

387-480(1), (3) I 24ZA(8) 43-120 124F(4) 387-500 124ZA(9) 43-180(2)

252

Finding Tables

I ~ ____ O_ld __ la~W ____ -L ___ N_e_W __ la_w __ ~11 L _____ O_ld __ la_W ____ -L ___ N_e_W __ la_W __ ~ 124ZA(10) 43-180(6) 124ZC(2A)(a) 43-10 124ZA(11) 43-180(7) 124ZC(2A)(b) 43-10 124ZA(12) 43-180(4) 43-115 124ZA(13) 43-180(5) 43-120

I 124ZA(14) 960-100 124ZA(15) 43-30 124ZA(16) 43-230

124ZC(2A)(c), (d) 43-25(1) 43-210

124ZC(2A)(e) 43-210

43-240 124ZC(3)(a) 43-10

124ZA(16A) 43-230 124ZC(3 )(b) 43-10

43-235 43-115

124ZA(16B) 43-230 43-120

43-235 124ZC(3)(c) 43-25(2)

124ZA(17) 43-175(2) 43-215

124ZA(18) 43-175(1) 124ZC(3)(d) 43-215

124ZA(19), (20) 43-180(1) 124ZC(4)(a) 43-10

124ZA(22) 43-125 124ZC(4)(b) 43-10

124ZA(24) 43-130 124ZA(25) 43-50(3)

43-180(3) 124ZAAA 43-50(7) 124ZB(1 )(a) 43-20(1) 124ZB( 1 )(b) 43-75(1), (2) 124ZB(I)(c) 43-20(1)

43-75(4) 43-95

43-115 43-120

124ZC(4)(c) 43-25(2) 43-215

124ZC(4)(d) 43-215 124ZC(4A)(a) 43-10 124ZC(4A)(b) 43-10

43-115 43-120

124ZB(I)(d) 43-75(2) 43-90

124ZC(4A)(c), (d) 43-25(1) 43-210

43-95 124ZC(4A)(e) 43-210

124ZB(2)(a) 43-20(1 ) 124ZB(2)(b) 43-20(1)

43-75(4)

124ZC(5) 43-15(1) 43-215

124ZC(5A), (5B) 43-15(1)

43-95 43-210

124ZB(2)(c) 43-75(2) 124ZC(6) 43-55

43-90 124Z0(1), (2) 43-210

43-95 43-215

124ZB(2)(d) 43-75(1), (2) 124Z0(3), (4) Omitted

124ZB(3), (4) 43-70(2) 124Z0(5) 43-250

124ZC(I)(a) 43-10 124ZE(1), (2), (3), (4) 43-40

124ZC(I)(b) 43-10 43-250

43-115 124ZE(5) 43-255

43-120 124ZE(6) 43-260

124ZC(I)(c) 43-25(2) 124ZE(7) Omitted 43-215 124ZEA 41-85

124ZC(1)(d) 43-215 124ZF(l) 43-195 124ZC(2)(a) 43-10 995-1(1)

124ZC(2)(b) 43-10 124ZF(1A) 43-170(2) 43-115 124ZF(lB), (12), (14) Omitted 43-120 124ZF(2) 43-75(1), (2)

124ZC(2)(c) 43-25(2) 124ZF(3) 43-140 43-215 124ZF(4)(a) 43-185(1), (2)

124ZC(2)(d) 43-215 124ZF(4)(b) i 43-185(3)

253

Finding Tables

L-____ O_�d __ �a_w ____ -L ___ N_e_w __ �a_w_·~1 ~1 _____ O_ld __ la_W ____ _L ___ N_e_W __ la_W __ ~ I I 24ZF(4A) 43-170(1) I 24ZH(2)(b) 43-10 I 24ZF(5) 43-190(1) 43-115 124ZF(6), (6A) 43-170(3) 43-120

I 24ZF(6)(a) 43-190(2) I 24ZF(7)(a) 43-165 I 24ZF(7)(b) 43-160 I 24ZF(8) 43-120

I 24ZH(2)(c) 43-25(2) 43-215

124ZH(2)(d) 43-215 I 24ZH(2A)(a) 43-10 I

I 24ZF(9) 960-100 I 24ZH(2A)(b) 43-10

I 24ZF(I 0) 43-30 I 24ZF(I I) 43-230

43-240

43-115 43-120

124ZH(2A)(c), (d) 43-25(1)

I 24ZF(1 lA) 43-230 43-235

43-210 I 24ZH(2A)(e) 43-210

I 24ZF(I 3) 43-125 124ZF(15) 43-130 124ZF(16) 43-50(3) I 24ZFAA 43-50(7) 124ZFA(I), (2) 43-145 124ZFA(3) 43-150 I 24ZFB(I), (2), (4) 43-20(2),(3),(4) I 24ZFB(3) Omitted 124ZFC(I), (3) 43-20(5) I 24ZFC(2) Omitted 124ZG(I)(a) 43-20(1) 124ZG(I)(b) 43-75(2) 124ZG(I)(c) 43-20(1)

43-75(4) 124ZG(I)(d) 43-75(2)

43-90

I 24ZH(3) 43-15(1) 43-215

I 24ZH(3A) 43-15(1) 43-210

124ZH(4), (5) 43-220 I 24ZH(6) 43-35 124ZJ(I) 43-210

43-215 124ZJ(2) 43-250 124ZK(I), (2) 43-40

43-250 I 24ZK(3) 43-255 I 24ZK(4) 43-260 124ZL 43-100 I 24ZLA 41-85 124ZZN(I) 20-20

I 24ZG(2) 43-185(1), (2) I 24ZG(2A)(a) 43-20(1) I 24ZG(2A)(b) 43-75(1), (2) I 24ZG(2A)(c) 43-20(1)

43-75(4) I 24ZG(2A)(d) 43-75(2)

43-90 124ZG(2B) 43-90 I 24ZG(2C) Omitted 124ZG(3), (5) 43-70(2) I 24ZG(4) 43-50(1), (2) I 24ZH(I)(a) 43-10 I 24ZH(I)(b) 43-10

43-115 43-120

124ZH(I)(c) 43-25(2) 43-215

I 24ZH(I)(d) 43-215 124ZH(2)(a) 43-10

20-35 20-40

I 24ZZN(2) 20-25(4) I 24ZZN(3) Omitted 262A(4AA) 41-55

42-275(4) 262A(4AC) 41-50

42-275(3) 262A{4AD) 41-50 262A{4AE) Omitted 635(1) 20-20

20-35 635(2) 20-25(4) 640 26-55 646(1) 20-20

20-35 646(2) 20-25(4) Sch.2A,I-1 28-5 Sch.2A,I-2 28-10 Sch.2A,I-3 28-12 Sch.2A,2-1(1) 28-15 Sch.2A, 2-1(2), (3), (4) 28-20

254

Finding Tables

I ~ ____ O_I_d_l_a_W ____ ~~ __ N_e_W_l_a_w ____ 1 LI _____ O_l_d_l_a_w ____ ~ ____ N_e_W_l_a_W __ ~ Sch.2A,3-1 Omitted Sch.2B,3-1 Omitted Sch.2A,3-2 28-25 Sch.2B,3-2 900-70 Sch.2A,3-3 28-30 Sch.2B,3-3 900-75 Sch.2A,3-4 28-35 Sch.2B,4-1 900-80

I Sch.2A,4-1 Omitted Sch.2A,4-2 28-45 Sch.2A,4-3 28-50

900-85 Sch.2B,4-2 900-80

900-95

Sch.2A,4-4 28-55 Sch.2B, 4-3(1), (3) 900-80

Sch.2A,4-5 28-60 Sch.2B, 4-3(2) 900-85

Sch.2A,5-1 Omitted Sch.2B,4-4 900-90

Sch.2A,5-2 28-70 Sch.2B,5-1 900-100

Sch.2A,5-3 28-75 Sch.2B,5-2 900-105

Sch.2A,5-4 28-80 Sch.2B,5-3 900-110


Sch.2A,6-2 28-90 Sch.2B,5-5 900-120

Sch.2A,6-3 28-95 Sch.2B,5-6 900-125

Sch.2A,6-4 28-100 Sch.2B,5-7 900-130

Sch.2A,7-1 28- 105 Sch.2B,5-8 900-135 28-110 Sch.2B,6-1 900-140

Sch.2A,7-2 28-115 900-145

Sch.2A,7-3 28-120 Sch.2B,6-2 900-150

Sch.2A,7-4 28-125 Sch.2B,6-3 900-155 Sch.2A,7-5 28-130 Sch.2B,7-1 900-165

Sch.2A,8-1 28-135 Sch.2B,7-2 900-170

Sch.2A,8-2 28-140 Sch.2B,7-3 900-175


Sch.2A,9-2 28-150 Sch.2B,7-5 900-185

Sch.2A,9-3 28-155 Sch.2B,8-1 900-195

Sch.2A, 10-1 28-160 Sch.2B,8-2 900-200 Sch.2A, 10-2 28-170 Sch.2B,8-3 900-205

Sch.2A,10-3 28-175 Sch.2B,9-1 900-215

Sch.2A, 10-4 28-180 Sch.2B,9-2 900-215

Sch.2A,11-1 28-165 Sch.2B,9-3 900-220 Sch.2A, 11-2 28-13 Sch.2B,9-4 900-225 Sch.2A, 11-3 28-90 Sch.2B,9-5 900-230

Sch.2B, I-I 900-10 Sch.2B,9-6 900-235

Sch.2B,I-2 900-5 Sch.2B,9-7 900-240

t Sch.2B, 2~1 Omitted Sch.2B,2-2 900-15

900-30 Sch.2B, 2-3(1), (4) 900-15

Sch.2B,9-8 900-245 Sch.2B,9-9 900-250 Regulation 4 330-60 Regulation 11 70-105(7)

Sch.2B, 2-3(2), (3) 900-20 Sch.2B,2-4 900-25 Sch.2B,2-5 900-35 Sch.2B,2-6 900-40 Sch.2B,2-7 900-45 Sch.2B,2-8 900-50 Sch.2B,2-9 900-55 Sch.2B,2-10 900-60 Sch.2B, 2-11 900-65

255

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