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01 Sep 1988

Income Tax Amendment Act (No. 4) 1988

Archived legislative commentary on the Income Tax Amendment Act (No. 4) 1988 from PIB vol 176 Sep 1988.

This commentary item was published in Public Information Bulletin Volume 176, September 1988

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Budget Night Tax Legislation (1988)

The changes to the depreciation provisions of the Income Tax Act announced in the Budget were introduced as part of a Finance Bill on Budget night.

The Bill was passed on 29 July and received the Governor-General's assent on 30 July 1988.

The tax amendments have become the Income Tax Amendment Act (No. 4) 1988.

The following explains the amendments made to the Income Tax Act 1976, in this regard.

Income Tax Amendment Act (No. 4) 1988

Section 1 - Short Title and Commencement

The income tax amendments contained in this Amendment Act are deemed to come into force on the 29th day of July 1988.

Section 2 - Revised Assessments where Assets Sold after Deduction of Depreciation Allowances

Three amendments have been made to section 117 of the Tax Act:

  • The rollover provision has been repealed
  • The recovery of excess depreciation on buildings has been made taxable
  • Any loss on the sale of a building is now specifically disallowed.

Rollover Provision

Previously when any asset (except a building) was sold for more than its depreciated value, taxpayers had the option of allowing the excess depreciation recovered to be applied in the reduction of the cost recorded for a replacement asset.

The rollover provision has now been terminated by limiting it to replacement assets acquired before 29 July 1988 or acquired under an unconditional contract of sale in force at the close of 28 July 1988.


Previously when any building (except a temporary building) was sold for more than its depreciated value, the excess depreciation allowed was not taxable.

For buildings sold or otherwise disposed of after 28 July 1988 (unless subject to an unconditional contract of sale at the close of the 28th day July) any excess depreciation is now to be treated in the same manner as applies to other assets, i.e., the excess depreciation is taxable. The depreciation which can be recovered for tax purposes includes all ordinary and special depreciation allowed over the period the building was owned.

Any excess depreciation recovered will be subject to the usual rights of election in respect of the spreading provisions included in section 117 of the Tax Act.

A new subsection (1A) has been inserted in section 117 to deal with the situation where buildings are sold for less than their depreciated value. No deduction of the resultant loss is to be allowed in such cases.


The introduction date of 29 July means that the new measures may affect some taxpayers with late balance dates in the 1988 income year.

In the case of late balance dates, the 1988 return form does not specifically provide or mention depreciation recovered on the sale of buildings. Taxpayers using late balance dates and to whom this measure applies are asked to attach a statement to affected 1988 tax returns, showing the depreciation recovered on the sale of buildings.

It should be noted that an unconditional contract is a contract in which no conditions have to be satisfied before title is passed. A conditional sale agreed to prior to 29 July can be regarded as unconditional if all the conditions were met by the close of 28 July.

The repeal of the rollover provision will affect assets sold before 29 July where the intended replacement asset has not been purchased, or contracted to be purchased, by the close of 28 July.