Clean-up deductions welcome

By BRIAN FALLOW

Tax disincentives to businesses' cleaning up their act environmentally are to be removed under an overhaul of 32-year-old provisions in the tax laws.

The Government said yesterday tax deductions would be made available for environmental spending such as preventing, mitigating or remedying the discharge of contaminants and monitoring the effects of pollution.

Tax experts welcomed the changes, due to be included in the next tax bill, planned for introduction in November.

The Income Tax Act allows a deduction (spread over five years) of spending for the treatment of "industrial waste", but the provision is narrowly drawn, applying only to capital expenditure in building earthworks or similar improvements.

Other more generic provisions give rise to a lot of uncertainty about what is deductible and what is not.

The proposed changes are intended to clarify the question, widen the scope of what can be deducted and establish, after consultation, more appropriate depreciation rates.

The Government has put an estimate of $20 million a year on the cost in revenue foregone.

Another area to be overhauled relates to spending to restore a site where business has ceased.

The costs incurred then are deductible but the firm concerned may have no further income against which to claim them.

Some corporates make accounting provision over several years for such spending but it cannot be deducted for tax purposes until the spending occurs.

The Government proposes a voluntary mechanism under which firms will be able to claim and "bank" deductions for such spending - essentially aligning the tax and accounting treatment of that provisioning.

Large site-specific enterprises like Comalco or Methanex could be among those able to make use of such a change.

Deloittes tax partner Thomas Pippos said overall the changes would tidy an aspect of the law that needed it.

It would be welcome for a wide spectrum of businesses.

PricewaterhouseCoopers partner John Shewan said: "We have a number of clients who have been very frustrated in recent years that the money they spend on pollution control or set aside for the restoration of sites gives rise to no tax deduction, yet from their perspective is an ordinary business expense."

KPMG partner Brahma Sharma called the changes sensible and timely.

"It is positive from the point of view of clarifying and hopefully extending the provisions."