On 4 August 1997 the Treasurer announced changes to the taxation treatment of exempt entity assets which become taxable. Under the revised arrangements, purchasers of exempt entity assets may only claim depreciation deductions based on the higher of pre-existing audited book value (PABV), audited and recorded in the exempt entity's accounts before 1 July 1997, and notional written down value (NWDV).
Following consultations with State and Territory Governments, several areas have been identified where clarification of the announced policy would assist State and Territory Governments by providing greater certainty for their privatisation programs.
To avoid unnecessary disruption to State and Territory Government privatisation programs in the period before Commonwealth legislation is enacted, I am therefore announcing:
- changes to the date before which a PABV must have been audited and recorded;
- that a PABV contained in a predecessor exempt entity's accounts may be "traced through" to successor exempt entities;
- that the 4 August 1997 press release will also apply to capital allowances available under subdivision 330-H of the Income Tax Assessment Act 1997 (ITAA); and
- that purchasers of exempt entity assets will be allowed to choose either PABV or NWDV on an individual asset-by-asset basis.
Date of Acceptable PABV
State and Territory Governments have advised that the annual accounts of some exempt entities were finalised and audited between 1 July 1997 and the date of the announcement (4 August 1997). The Government considers that all accounts that were audited before 4 August 1997 should qualify, and accordingly I announce that PABVs will be accepted where those valuations were audited and recorded in the exempt entity's accounts before 4 August 1997.
Predecessor Entities
Privatisations often involve the break-up of an exempt entity ("predecessor exempt entity") through the allocation of its assets to smaller exempt entities ("successor exempt entity"). The Australian Taxation Office has advised that a strict reading of the 4 August 1997 announcement would suggest that the vast majority of successor exempt entities would not have a PABV if they were allocated assets from a predecessor exempt entity at any time after 30 June 1996. The Government does not consider that such an outcome would be appropriate.
I therefore announce that where there is no PABV of an asset in a successor entity, the purchaser will be entitled to trace back the ownership of the asset through any relevant predecessor exempt entities in order to identify the relevant PABV.
Capital Allowances under Subdivision 330-H of the ITAA
The Government notes that in some circumstances plant that would ordinarily constitute depreciable plant under Division 42 of the ITAA (and hence be subject to the 4 August 1997 announcement) could instead qualify for amortisation under the transport capital expenditure provisions in Subdivision 330-H of the ITAA. The deductions available under Subdivision 330-H to a purchaser of such plant would be based on the purchase price and thereby undermine the policy intent of the 4 August 1997 announcement.
I therefore announce that the 4 August 1997 press release will also apply to capital allowances available under Subdivision 330-H of the ITAA in respect of plant that would constitute depreciable plant under Division 42 of the ITAA if not for the operation of Subdivision 330-H of the Act.
Asset by Asset Choice of Opening Values
The 4 August 1997 announcement did not specify whether purchasers of exempt entity assets may elect to choose either PABV or NWDV on an individual asset-by-asset basis, or whether they would be required to adopt the same valuation basis for all depreciable assets.
The Government notes that requiring purchasers to adopt a single valuation basis for all depreciable assets would unnecessarily disadvantage purchasers of exempt entity assets. Accordingly, I announce that purchasers of exempt entity assets will be allowed to claim depreciation deductions based on a once-off choice of either PABV or NWDV for each individual asset.