ATO EXTENDS ASSET LIFE SUBMISSIONS
The ATO has yet to determine a final outcome in its review of the effective life of quarrying assets and has surprisingly granted an extension for submissions from other industry representative bodies.
The CMPA presented a detailed submission to the ATO after becoming aware of the potentially damaging issue late in 2002.
CMPA members presented detailed information in a forum with an ATO official (see CMPA Newsletter #8) and subsequently a 23 page submission based on member feedback and expert advice on the proposed changes.
The CMPA submission is currently being considered by the ATO’s Effective Life Centre of Expertise, before a final decision is due mid year.
Changes to the handling of the effective life of assets as proposed by the ATO would cause considerable operational and financial difficulties to small extractive industry operators as equipment and machinery depreciation life schedules are slated to be significantly extended. “The changes increase the anticipated (depreciable) life of equipment, which reduces claim-ability thereby increasing annual taxable income and reducing cash flow,” according to the CMPA.
Changes to the schedules may see depreciation on assets such as crushers extended to 30 years from the current period of 10 years. According to the ATO the review is the “most detailed effective review of life of assets” ever undertaken.
The CMPA contends that by extending the effective life of equipment the proposed changes will have an immediate impact on business’ cash flow and represent an increased and unjust tax burden on the industry. “They will discourage capital investment in new equipment and encourage retention of outdated and aged, possibly inefficient, quarrying equipment to the detriment of the industry and the economy as a whole. This will propagate inefficient and dangerous practices of repair and maintenance,” the CMPA submission stated.
Further, the CMPA said that safety and environmental regulations combined with new technology and competition in the manufacturing sector has acted to reduce the effective life of many assets forcing quarry operators to upgrade assets far more regularly than in previous years. This is in contrast to proposals to extend the effective lives of these assets.
The CMPA is also concerned that the ATO be aware that depreciation rates provide benefits to large business at the expense of small business. “As small business forms the major share of all businesses in the quarry industry in Victoria, it is this sector that will carry the major load of any changes. It is this sector that also is the largest overall employer”.
Any changes may also impact equipment suppliers and dealers as less new equipment may be sold or cheaper machinery is favoured over more costly but more reliable units.
The ATO has also received a submission from the various state Extractive Industry Associations via the Queensland EIA who have also successfully negotiated an extension to the closing date to the end of February to provide further technical data.
Following receipt of all submissions they will be considered by an ATO panel to determine if the evidence provided is sufficient of substantiated enough to forward to the taxation commissioner. It is expected that parties making submissions will receive feedback by the end of March before final commissioner’s review and implementation in July.
The CMPA has expressed concerns with the process to date. The Association was not initially aware or involved in the project and became involved after a notification by an industry supplier. Further, no notice was given by the ATO for extensions to submissions being granted until questioned by the CMPA.
It is believed the EIAQ (Queensland) will be presenting further technical data in a late submission identifying quarry assets that have an effective life shorter than those proposed by the ATO.
The ATO has corresponded that it will be strict in judgement of technical data submissions suggesting shorter lives for particular equipment. “Evidence demonstrating that there is an industry norm of substantial physical replacement of a particular asset occurring … earlier than that indicated by our currently proposed effective life (is expected)”. This sort of evidence has formed the basis of the submission provided by the CMPA.
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