Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX AMENDMENT REGULATIONS 2001 (NO. 5) 2001 NO. 163

STATUTORY RULES 2001 No. 163

Issued by the authority of the Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2001 (No 5)

The Governor-General may make regulations under section 266 of the Income Tax Assessment Act 1936 (the Act) for the purposes of the Act.

Currently, Regulation 152L of the Income Tax Regulations 1936 provides for a notional capital allowance for the amortisation of capital works (building and construction works) that are not plant, to be taken into account as reducing the notional income of foreign investment funds.

The Regulation ensures that the law maintains that notional capital allowance by amending the section reference contained in Regulation 152L from a reference to section 42-18 to a reference to section 45-40. This is required because the definition of plant is being transferred from one area of the Income Tax Assessment Act 1997 (ITAA 1997) to another area of that same Act.

The section will be relocated by the uniform capital allowance system contained in the New Business Tax System (Capital Allowances) Bill 2001 and New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001, which upon commencement will repeal the current section containing the definition of plant and insert another section containing an equivalent definition of plant in the same Act. The change proposed by the New Business Tax System (Capital Allowances Transitional and Consequential) Bill 2001 will require a corresponding reference change to be made to the Regulations.

There were over 37 separate capital allowance regimes in the income tax law that have inconsistent features. The New Business Tax System (Capital Allowances) Bill 2001 is proposed to relieve this substantially by introducing a uniform capital allowance system that offers significant simplification benefits as well as improving neutrality.

As a result of implementing this system several definitions will be relocated from the existing capital allowance provisions into other Divisions or into the Dictionary as part of the New Business Tax System (Capital Allowances) Bill 2001 and the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001. The relocation of the definition of plant from Division 42 to Division 45 of the ITAA 1997 is the reason for the proposed Regulation.

Regulation 152L refers to the section that contains the definition of plant that will be repealed by the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001. The definition of plant is required as it limits the reduction in notional income associated with this notional capital allowance. The limitation is required because capital allowances associated directly with plant are allowable under the statute. Without the limitation in place it is possible for a double reduction in notional income to occur. The regulation therefore needs updating to reflect the corresponding reference to the new law.

The Regulation would commence to coincide with the commencement of Schedule 2 of the Bill, so in the event that the Bill does not become law or is deferred the regulations will not commence. The Bill as currently drafted would take effect generally on 1 July 2001. The commencement of the Regulation would coincide with that of the Bill as the Bill is responsible for relocating the definition of plant.