The Government has decided to amend the treatment of spectrum licences under the Income Tax Assessment Act 1997 (ITAA) and to make consequential amendments to the Radiocommunications Act 1992. These changes are being made in view of the forthcoming auction of radiofrequency spectrum in the 800 MHz and 1.8 GHz bands. All successful bidders (both domestic and foreign) for domestic spectrum licences will be able to avail themselves of the tax advantages of these changes.

The Government has decided to legislate to allow for the amortisation of the acquisition cost of domestic spectrum licences over the 15 year effective life of the licence. The amortisation deduction will be allowable only to taxpayers who have acquired spectrum licences pursuant to the Radiocommunications Act 1992.

Allowing amortisation of the acquisition cost of domestic spectrum licences is appropriate as it is consistent with the underlying wasting nature of spectrum licences, which contribute to the income earning capacity of the holder over their life. Amortisation is consistent with matching the cost of the licence to the income it generates. The current tax treatment of spectrum licences is inappropriate as they are on capital account which means there are no deductions for acquiring the licences but there will be capital losses when they expire.

Furthermore, amortisation is consistent with the tax treatment of spectrum licences in overseas jurisdictions such as the United States and Japan. Without this change, in the forthcoming auction of spectrum licences Australian resident bidders may be at a financial disadvantage compared with overseas bidders due to the differing tax treatment.

The Government is also announcing today three measures to ensure that Australia is able to assert its taxing rights over income from the use of spectrum where a spectrum licence is owned by a non-resident.

• First, the domestic law definition of a royalty will be amended to specifically include spectrum licence payments. This will allow royalty withholding tax (RWT) to be collected from payments made in relation to spectrum licences (including rights to use such licences) to a resident of a country with which Australia does not have a double taxation agreement (DTA).
• Secondly, Australia’s DTAs will be renegotiated with a view to including such payments in the DTA definition of royalties. This will, as the treaties are renegotiated, allow Australia to impose RWT on payments to DTA countries.

• In the meantime, and thirdly, the Government intends to amend the Radiocommunications Act 1992 so that all payments made in relation to spectrum licences (including rights to use such licences) to persons who are residents of countries with which Australia has DTAs will be subject to tax in Australia. This will bring the taxation treatment of such payments into line with that of similar payments made to Australian residents. This will be achieved by imposing a condition on spectrum licences. Renegotiation of Australia’s DTAs to include spectrum licence payments within the DTA definition of royalties may, in time, allow this condition to be removed.

Legislation amending the ITAA and the Radiocommunications Act 1992 will be introduced into the Parliament as soon as possible. Amortisation and the licence condition regarding tax arrangements for payments made in relation to spectrum licences will apply to all spectrum licences issued from today.

CANBERRA

11 March 1998

CONTACTS: Anne McCarthy (International tax issues)

Australian Taxation Office

(02) 6216 1327

Paul McMahon (Amortisation issues)

The Treasury

(02) 6263 4457

Richard Desmond (Licence condition issues)

Department of Communications and the Arts

(02) 6271 1617