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Capital Expenditure and Depreciation
18.22. Section 56 allows depreciation on plant to taxpayers generally, on the basis specified in section 55 which requires the rate of depreciation to accord with the effective life of a depreciable unit. Primary producers are in a special position inasmuch as the word ‘plant’ in section 54 is defined to include structural improvements on land used for agricultural or pastoral pursuits. Certain structural improvements in forest and pearling operations also come within the definition.
18.23. Primary producers also incur capital expenditure that does not result in any unit of property within the definition of ‘plant’ in section 54 coming into existence. Some items of capital expenditure of this nature are subject to the special provisions of section 75A. These are:
- (a) the eradication or extermination of animal or vegetable pests from the land;
- (b) the destruction and removal of timber, scrub or undergrowth indigenous to the land;
- (c) the destruction of weed or plant growth detrimental to the land;
- (d) the preparation of the land for agriculture;
- (e) ploughing and grassing the land for grazing purposes;
- (f) the draining of swamp or low-lying lands where that operation improves the agricultural or grazing value of the land;
- (g) preventing or combating soil erosion or flooding on the land; or
- (h) conserving or conveying water for use in carrying on primary production on the land.
18.24. The section allows deduction for the cost of these items over ten years. Such expenditure is distinguishable from expenditure of a similar description incurred in ploughing agricultural fields, maintaining pastures and keeping down the incidence of plant and animal pests. The latter is ordinary revenue expenditure which is deductible in full under section 51 in the year in which it is incurred.
18.25. Although it is acknowledged that some of the expenditures qualifying for capital allowances under section 75A may be of benefit for periods exceeding ten years, overall this section and the provision regarding depreciation on structural improvements are considered to be a reasonable compromise in providing allowances appropriate to the determination of true net income.
18.26. Prior to the termination of the provisions of section 75, the Committee received a great number of submissions protesting against the concessions allowed under that section. For the most part they were made by persons or organisations concerned with the protection of the environment and were directed mainly at subsection (1) (b) of section 75, which allowed deductions for the destruction and removal of timber, scrub or undergrowth indigenous to the land.
18.27. The deductions now allowed under section 75A over a period of ten years were previously allowed (in respect of
expenditure incurred before 21 August 1973) in full under section 75 in the year in which the expenditure was incurred.
Where a taxpayer improved a farm for sale as part of a profit-making undertaking and at the same time carried on a
business on that farm, when the farm was sold he was able by virtue of section 82 (3) (a) to obtain a deduction for
expenses already deducted under section 75 in computing any profit subject to tax. In no longer allowing a full deduction
for capital expenditure described in section 75 or a double deduction for such
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expenditure (when allowable
under section 75A), amendments to the Act have removed the tax assistance aspect of the provisions in regard to the cost
of clearing land. In the Committee's view, therefore, no further amendment to meet the case for protection of the
environment is called for.
18.28. Another type of capital expenditure for which a deduction has been sought in submissions is the cost of extending power lines incurred by primary producers. At present the cost of extending telephone lines is allowable as a deduction in ten equal instalments. The cost will contain elements of both private expenditure and business capital expenditure. In the latter aspect, deduction seems appropriate whether for telephone lines or power lines: such costs would normally have been deductible if the expenditure had been incurred by the relevant authority and recouped by way of additional current charges for the service. In the private expenditure aspect, deduction can in the Committee's view be justified on the ground of remoteness of the place of living, which dictates that the additional cost be incurred.