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Development Expenditure

19.104. After the nature and extent of the deposit has been ascertained and the rights to quarry it secured, the next step in opening the quarry is the removal of overburden prior to exploitation of the deposit. This operation, together with the construction of access roads and associated facilities, constitute the preparation for production and is analogous to the development phase in general mining. Some plant may be depreciable under the regular depreciation provisions; but certain items of expenditure, such as removal of overburden of a capital nature, attract no deduction at all.

19.105. The Committee has formed the view that the cost of removing the total overburden is an item of expenditure that should be accounted for in computing the net income of a quarrying venture: to the extent it is not allowed as a current operating cost, it should be recouped out of the profits generated by the quarry by amortisation over the life of that quarry.

19.106. Further, no deduction is at present allowed in respect of expenditure on buildings erected on the quarry site which may house plant, be employed for administrative purposes or provide staff amenities. Chapter 8 makes recommendations with regard to the depreciation of buildings and the Committee would apply these to the buildings here in question.

19.107. It has also been submitted that expenditure on plant employed in quarrying should be deductible as for general mining. Such plant is generally depreciable by the quarry miner under sections 54 to 62 but some of it may have little residual value on termination of quarrying operations. The problem of the discrepancy between the life of an article of plant employed in mining or quarrying and the period during which mining or quarrying operations will continue is a real one and dictates a distinctive approach, particularly where the plant has not been depreciated in full when quarrying operations cease and the plant is therefore, for practical purposes, useless. The problem could perhaps best be approached by following the alternatives available to general miners under Division 10. Expenditure on any plant employed in quarrying operations would be amortised, at the election of the taxpayer, by way of deduction from profits generated by the quarry over its life. Balancing charges would, of course, apply to plant sold or disposed of and, for this purpose, the Committee envisages a section along the lines of the present section 122K. As an alternative, the taxpayer may elect to claim depreciation in respect of the plant in accordance with Section 54. ‘Plant’ in this context should include any plant used in screening or crushing the quarry product: this is analogous to ‘treatment’ in the case of a general mining enterprise.

19.108. The cost of access roads should be deductible over the life of the quarry from income generated by the quarry, since they are a necessary item of expenditure


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undertaken by a quarrying enterprise and their value is intrinsically linked with the life of the quarry. In Division 10A (Timber Operations and Timber Mill Buildings), the cost of access roads is deductible by means of amortisation over the estimated period during which the access road will be used for the purpose for which it was primarily and principally constructed, or twenty-five years, whichever is the less (section 124F). The cost of access roads is also deductible under Division 10AAA in relation to mining enterprises. This treatment has been provided in these areas where expenditure on a road forms part of the cost of recovering a wasting asset. The proposed treatment would embrace those roads (or railroads) providing access to the quarry and connecting it with a public road or railway.

19.109. It will be noted that, with regard to expenditure falling generally within the description of ‘development’, no recommendation has been made proposing the availability of accelerated depreciation allowances or write-offs. The quarrying enterprise does not face the problem of long delay between discovery and production, accompanied by the necessity for substantial expenditure, that characterises the general mining industry. As a consequence, the cash-flow difficulties of the quarry miners are not so substantial as to require differential taxation treatment. In view of this, the Committee's approach has been to recommend amortisation of certain classes of capital expenditure outlined above on a life-of-mine basis.

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