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Housing and Welfare Expenditure.

19.71. ‘Housing and welfare’ is defined in section 122 (1) and encompasses all infrastructures erected to house and service the requirements of mine employees and all other essential personnel in the vicinity of the mine site. The 1974 amendments terminated the option of the taxpayer under section 122F to write off such expenditures over a period of five years.




  ― 308 ―

19.72. The option of a five-year write-off facility was obviously provided as an incentive to the furnishing of suitable and adequate amenities in remote locations and by way of recognising the substantial costs involved in erecting them. For example, it has been estimated (in a submission to the Committee) that the cost of erecting a house in the Pilbara area is two-and-a-half times that incurred in erecting the same house in Perth. The Committee has been given other examples of this type of discrepancy. The fact that expenditure on such infrastructures is deductible is attributable to its minimal or nil residual value when mining operations are terminated; and since the practical utility of these amenities is linked with the rate of exhaustion of the deposit, it is appropriate to write off such expenditures over the life of the mine. The five-year write-off facility may, like sections 122E and 122G discussed earlier, be viewed as an accelerated amortisation provision, the main effect and benefit of which is to provide a source of cash-flow in the early years of production which itself may be used to service loans raised to finance the erection of the infrastructures. It differs from the life-of-mine amortisation approach now remaining in that, while the latter enables computation of profit in an accounting sense, it does not provide any recognition of, nor alleviate, the practical burden confronting a mining enterprise in obtaining the capital, labour and amenity resources necessary to develop its mine. The Committee considers that, while the same comments may be made as those raised in relation to accelerated depreciation allowances in paragraphs 19.66–19.70, it is not appropriate for the Committee to make any recommendation as to the nature and extent of any concession to be granted in this area.

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