4CMeaning of capital recognition deduction

4C Meaning of capital recognition deduction (1) In this Act capital recognition deduction, for the purposes of a deduction under section 10(2), means a factor equivalent to a fraction of the value of each item representing an amount of eligible

Part I Preliminary Mineral Royalty Act 1982 19 capital assets expenditure and used in relation to the operation of a production unit in each 6 monthly period of a royalty year, calculated as follows: (a) all items representing eligible capital assets expenditure are allocated within the capital deduction life schedule under subsection (5); and (b) a principal sum represented as 100% of an item from each group in the deduction life schedule is converted into a series of semi-annual annuities payable in arrears over the period of the deduction life, at a rate of interest determined under subsection (6) plus 2%, by the use of annuity tables having at least 5 significant places of decimals or by any other approved method; and (c) the resulting amounts expressed as fractions of each principal sum mentioned in paragraph (b), are the factors used in calculating the capital recognition deduction for the items in each group of the capital deduction life schedule. (2) The Secretary shall from time to time announce the factors to be used in calculating a capital recognition deduction and the period during which they apply, being a specified period of 6 months before the Secretary's announcement. (3) The capital recognition deduction in respect of an item representing eligible capital assets expenditure not used on or directly related to the operations of the production unit for a whole 6 month period shall be reduced in proportion to the time during the 6 month period that it was not used. (4) If the Secretary does not make a further announcement under subsection (2) within 1 year after making an announcement under that subsection, the factors applying in the next 6 month period shall be those specified in the Secretary's first announcement, and those factors shall continue to apply in the next consecutive periods of 6 months until changed by the Secretary. (5) For the purposes of subsection (1), the Secretary shall promulgate guidelines under section 4E indicating the period over which a capital recognition deduction will be made for items representing eligible capital assets expenditure, being guidelines (in this section referred to as a capital deduction life schedule) based on rates of depreciation allowed in respect of items for income tax purposes and taking into account the residual life of items already partly or wholly depreciated, adjusted as shown in the following table:

Part I Preliminary Mineral Royalty Act 1982 20 Period over which depreciation allowed for income tax purposes Corresponding period allowed for purposes of capital recognition deduction 4 years or less 3 years Over 4 years but less than 10 years 5 years 10 years and over and all other assets 10 years (6) The interest rate to be used under subsection (1)(b) is equivalent to the arithmetic mean of the published daily yields on Australian Federal Securities most closely approximating 10 years to maturity during the 6 month period announced by the Secretary under subsection (2). (7) The Secretary may, notwithstanding subsection (5) and guidelines promulgated pursuant to it, make special arrangements with a royalty payer for the treatment of items representing eligible capital assets expenditure for the purposes of this section. 4CA Additional deductions The Minister may, by agreement in writing with a royalty payer, agree that there may be claimed as an additional deduction in the royalty year during which: (a) a production unit first commences the production of a commercial quantity of a saleable mineral commodity; or (b) this Act first applies to and in relation to an already producing mine, such amounts of expenditure directly relating to the production unit or mine as were expended at any time by the royalty payer or a company which, in the opinion of the Minister, is or was at the time a company related to the royalty payer, as are specified in the agreement and, subject to section 4D, those amounts may be deducted in calculating the royalty payable under Part II accordingly.